ACKNOWLEDGEMENTS

Chief Patron SHRI RANGLAL JAMUDA IAS

Commissioner

KVS, New Delhi.

Patron Smt. Pragya Richa Srivastava IPS

Joint Commissioner (Adm & Vigilance)

KVS, New Delhi. &

DR. U.N. SINGH

Joint Commissioner (Acad.),

KVS, New Delhi.

Advisor SHRI V.K. Srivastava

Assistant Commissioner

KVS, BHOPAL REGION

Supervisor SHRI S N Sharma

Principal

KV,No. 2, BHOPAL

RESOURCE PERSONS

1 Dr.M.AMARNATH REDDY,PGT Economics,

Kendriya VidyalayaBarkuhi, M.P..

2 Smt. SARBASREE MAJUMDARPGT Economics,

Kendriya Vidyalaya, No.2Bhopal..

3 Smt. MAMTA JHAPGT Economics,

Kendriya Vidyalaya, No.1Bhopal..

INDEX

1. Weight age of Marks

2. Model Question Papers with solutions

a. Mock Question Paper 2009 – Set 1 - Solved

b. Mock Question Paper 2009 – Set 2 – Solved

c. CBSE sample papers 2009 - Solved

d. Model Question Paper - Unsolved

e. Model Question Paper – - Unsolved

3. Higher Order Thinking Skills Questions

I. Micro Economics

f. Unit 1- Introduction

g. Unit 2 – Theory of Consumer Behavior & Demand

h. Unit 3 – Theory of Producer's behavior & Supply

i. Unit 4 – Forms of Market and Price determination

j. Unit 5 –Market Equilibrium

II. Macro-Economics

a. Unit 6 - National Income and related aggregates

b. Unit 7 - Determination of Income and Employment

c. Unit 8 - Money and Banking

d. Unit 9 - Government Budget and the Economy

e. Unit 10 - Balance of payments

4. Note for the user of the material

5. Common Errors committed by the students.

6. Tips for High Scoring.

1.If any answer ( diagrams) is not finding / not getting you may visit Site of

KVS, Bhopal, RO (www.kvsrobhopal.org.in)

You may visit Think.com of Dr.M.A.Reddy, Kendriya Vidyalaya, Barkuhi,

Chhindwara district, Madhya Pradesh.

2. For CBSE Outside Delhi, March 2008, 2007 and 2009 sample papers. Both

question papers and expected answers are also available in this site.

WEIGHTAGE OF MARKS

S.NO CONTENT MARKS

1.UNIT

Part – A Introductory Micro Economics 50a. Introduction 04b. Theory of Consumer Behaviour & Demand 13

c. Producer's Behaviour & supply 23

d. Firms of Market and Price Determination 10

e. Simple application of tools of demand and supply curves **2.UNIT

Part – B Introductory Macro Economics 50

a. National Income Accounting & related aggregates 15

b. Determination of Income and Employment 12

c. Money & Banking 08

d. The government budget and the Economy 08

e. Balance of Payment 07

TOTAL 100

Design of sample Question Paper

Objectives Percentage of Marks

Knowledge 30 %

Understanding 50 %

Application 20 %

Time Management:-Form of Questions No . of.

questionsMark for each Question

Total Marks Estimated Time(in minutes)

Long answer (L.A) 6 6 36 66 MinsShort answer (S.A.I) 6 4 24 42MinsShort answer (S.A.II) 10 3 30 50 MinsVery Short answer 10 1 10 10 MinsTotal 32 100 (Four parts each)

168 + 12minutes for revision

MOCK PAPER FOR MARCH 2009 - IECONOMICSTime : 3 Hrs. Max. Marks - 100Note :i. All questions in both the sections are compulsory.ii. Marks for questions are indicated against each.iii. Question Nos. 1-5 and 17-21 are very short-answer questions carrying 1 mark each. They are required to be answered in one sentence each.iv. Question Nos. 6-10 and 22-26 are short-answer questions carrying 3 marks each. Answer to them should not normally exceed 60 words each.v. Question Nos. 11-13 and 27-29 are also short-answer questions carrying 4 marks each. Answer to them should not normally exceed 70 words each.vi. Question Nos. 14-16 and 30-32 are long-answer questions carrying 6 marks each. Answer to them should not normally exceed 100 words each.vii. Answers should be brief and to the point and the above word limit be adhered to as for as possible.

SECTION :A (50 Marks)1. Why do an economic problem arise? 1M2. What is meant Consumer’s equilibrium? 1M3. What do you meant by MU? 1M4. ) What is a conditions of producer’s equilibrium? 1M5. In which market both AR and MR equal. 1M6. Explain why a production possibilities curve is concave. (3)7. What are the factors affecting demand ? (3)

8.Explain the relationship between TR and MR . (3)

9. Difference between Change in Quantity demand and Change/Shift in demand: (3)

Difference between Change in Quantity supply and Change/Shift in supply.

10.Explain any three important features of Monopoly Market. 3M

11. A consumer buys 160 units of a good at a price of Rs 8 per unit. Price falls to Rs 6 per unit. How much quantity will the consumer buy at the new price if price elasticity of demand is (-)2) ? 4M

12. Why demand curve slopes down wards? (or)

13.Calculate Total Variable Cost and Marginal Cost from the following cost schedule of a firm whose Total Fixed Costs are Rs. 12 : 4M

Output Total Cost(Unit) (Rs.)1 202 263 314 3814. Explain the likely behaviour of Total Product and Marginal Product when

only one input is increased while all other inputs are kept unchanged. 6M (or) Explain the reasons for : (i) increasing returns to a factor and (ii) increasing returnsto scale.

15. There is a simultaneous decrease in demand and supply of a commodity.When will it result in :(a) No change in equilibrium price. , (b) A fall in equilibrium price. ,Use Diagram.16. What are the determinants of market the supply . (USE DIAGRAMS). ?

SECTION : B

17. . What do you meant by Deficient demand /Excess demand? 1M18. What do you meant by Barter System: 19. Show Inflationary gap? 1M20. Define APC/APS? 1m / Give the relationship between APC and APS.

21.. What do you meant by Primary Deficit ? / Revenue deficit. 1M

22. Calculate Personal Income from the following data : 3 (Rs. crores)(i) Undistributed profits of corporations 20(ii) Net domestic product accruing to the private sector 500(iii) Corporation tax 55(iv) Net factor income from abroad (—) 10(v) Net current transfers from government 15(vi) National debt interest 40(vii) Net current transfers from the rest of the world 15 OR Calculate Gross Value Added at MP from the following data. 3M

Sl.No Items Rs. In lakhs1 CFC/ Depreciation 152 Sales in domestic market 2503 Exports 504 Opening stock 205 Purchase of raw material 1506 Closing stock 307 Import of raw material 25

23. What are the ( ANY THREE) Functions of Money:- I (or)

What are the drawbacks of BARTER SYSTEM . ( ANY THREE) 3M

24.. . What is the basis of classifying government expenditure into :

(a) Plan expenditure and non-plan expenditure(b) Developmental expenditure and non-developmental expenditure. (3)

25. A Rs. 200 crore increase in investment leads to a rise in national income by Rs. 1000 crores. Find out marginal propensity to consume. 3m26. What are causes for disequilibrium of balance of payments / What are the components of current account27. State any two merits and demerits of fixed exchange rate system. (4)/Explain how foreign exchange rate is determined in a foreign exchange market ?28.Distinguish between ‘revenue receipt’ and ‘capital receipt’ and give twoexamples of each. (4)29. What are the FUNCTIONS OF COMMERCIAL BANKS: (4) RBI functions Issue of Currency: / Bankers to Government/ Lender of Last Resort30. How will you treat the following while estimating domestic product of India?(i) Rent received by a resident Indian from his property in Singapore.(ii) Salaries to Indians working in Japanese Embassy in India.(iii) Profits earned by a branch of an American Bank in India.(iv) Salaries paid to Koreans working in Indian embassy in Korea. ORExplain any two precautions that should be taken while estimating nationalincome by (a) value added method, and (b) income method. (6)31. Can an economy be in a state of under employment equilibrium? Explainwith the help of a diagram. (6) / Equilibrium of income under Agg.D and Agg.S

32. Calculate GD) P at MP by a) Expenditure method, b) Income method (Rs. In Crores)

Ans: a) 205 Crores, b) 205 Crores

1) Net domestic fixed capital formation 50

2) Operating Surplus 50

3) Subsidies 5

4) Mixed income 60

5) Pvt. Final consumption expenditure 120

6) Social security contributions by employees 10

7) Net factor income from abroad (-)10

8) Indirect tax 30

9) Addition to stocks 5

10) Compensation of employees 70

11) Govt. final consumption expenditure 25

12) Net exports 5

Model ANSWERS FOR EXPECTED QUESTIONS FOR 2009EXAMS

1.An economic problem is basically the problem of choice, which arises because of scarcity of resources. Human wants are unlimited but resources to satisfy them are limited. In such a situation every individual and society have to make a choice as to which wants should be satisfied by making use of scarce resources which have alternative uses.

2) Consumer equilibrium:-It refers to a situation when he spends his given income on purchase of a commodity ( or commodities) in such a way that yields him maximum satisfaction

b) Marginal utility of a product = Price

Marginal Utility of Rupee3. Marginal utility is the satisfaction derived from consumption of additional

commodity, MU= TUn –TUn-1

4.) A producer (a firm) is said to be in equilibrium when it earns maximum profits.- The two conditions are : ) MC = MR, (ii) MC curve must be the rising at the point of

equilibrium 5.Perfect competition market 6.Shape of PPC:- Normally, the PPC is concave to the origin and slopes downwards,

because of increasing marginal rate of substitution. Downward sloping concave PP curve shows increasing Marginal Rate of Transformation (MRT) as more quantity of one good is produced by reducing quantity of the other good. This behaviour of the MRT is based on the assumption that all resources are not equally efficient in production of all goods. As more of one good is produced, less and less efficient resources have to be transferred to the production of the other good which raises marginal cost i.e. MRT.

7. a. Price of a commodity: With the fall in the price of a commodity, its demand extends. b. Price of other related goods: Demand for a commodity is also

influenced by the change in the price of other related goods.

(i) Substitute goods: Increase in the price of one causes increase in

Marginal Utility of product = M.U. of a Rupee

Its Price

demand for the other and decrease in the price of one causes decrease in demand for the other. (ii) Complementary goods: A fall in price of one causes increase in the

demand of the other and a rise in the price of one causes decrease in the demand for the other.

c. Income of the consumer: Change in the income of the consumer also influences his demand for different goods. The demand for normal goods tends to increase with increase in income, and vice-versa. On the other hand, the demand for inferior goods like coarse grain tends to decrease with increase in income and vice-versa.

8.

9. Change in Quantity: The change in the price of commodity leads, there will be change in quantity of demand for the commodity .Expansion due to fall in price, and Contraction due to rise in price. (diagram – A)

Change/Shift in demand: A change or shift of demand curve is due to a change the other factors(Income of the consumer iii) Price of related goods and iv) Tastes and preferences of the individual/ consumer) than price of the commodity. Rightward shift of ‘DD’curve means increase quantity, while leftward shift ‘DD’curve means decrease quantity.

CHANGE IN QUANTITY SUPPLIED:- It is caused by a rise/fall in the price of a commodity. It is expressed either in form of an expansion in supply or contraction in supply. Expansion and contraction in supply are represented diagrammatically in the form of a movement along a given supply curve. Contraction is due to fall in price . (see fig.(A))

CHANGE IN SUPPLY:- A change in supply of a commodity caused by factors other than (Income of the consumer ii) Price of related goods and iii) Tastes and preferences of the individual/ consumer) the price of a commodity. Change in supply is represented graphically by a rightward or leftward shift. Decrease is due to fall in other factors than the price. Leftward shift shifting of supply curve leads to decrease the supply. .(see fig.(B))

10. MONOPOLY: 1) Monopoly means single seller/firm, where buyers are many 2) There is no close substitute available, The goods sold by the monopolist does not face any competition. 3) Entry is rigid; There are some restrictions on the entry of new firm into monopoly industry. 4) Price maker, a monopolist has full control over he

Output(units)

Price

(Rs.)MR(Rs.)

TR(Rs.)

1 10 10 10

2 9 8 18

3 8 6 24

4 7 - 4 20

When TR increases MR IS POSITIVEWhen TR is constant/ maximum MR is zeroWhen TR is decreases MR is negative

supply of commodity. He can fix the price, which maximizes its profits.5) The ‘DD’ slopes down ward because price of the good has to reduce if the monopolist wants to sell more

11. , , X = 160 = +80 , X = +80 +

160 = 240 The Consumer will buy 240 units

12. The demand curve slopes downward because of :- i) Law of diminishing marginal utility : According to this law, as a consumer in a given time, increases the consumption of a thing, the utility from each successive unit goes on diminishing A Consumer gets maximum satisfaction. When the price of a commodity is equal he its marginal utility. As more units are bought, their marginal utility diminishes. Thus, a consumer will boy more units of a commodity, with fall in its price.

ii)Income effect : Change in the price of a commodity causes a change in the real income of the consumer. With fall in price, real income increases. The increased real income is used to boy more units of the commodity.

iii)Substitution effect : When the price of community X falls it becomes cheaper in relation to commodity. Accordingly X is substituted for the commodity. A consumer in order to get more satisfaction, will boy more units of the commodity whose price has fallen in relation to the commodity.

iv) Uses of commodity : If a commodity has diverse uses, with the fall in the

price of product consumer will buy more.

Factors determining elasticity of supply : -1. Nature of commodity:- Perishable and agricultural goods –inelastic and durable goods – elastic. 2. Cost of Production:- If the production is subject to diminishing costs supply will be more elastic. In case of increasing costs, supply will be less elastic. 3.Time period:- During short period, supply will be less elastic and in the long period, supply will be more elastic.4. Technique of production:- Goods using simple technique of production –elastic supply in case of complex goods, less elastic. 5) Risk Bearing Capacity:- the goods will have elastic supply if risk bearing capacity of the firm is large. If producers are unable to bear risk, they will produce less elastic goods.

13. Q TC TFC TVC MC

1 20 12 8 8

2 26 12 14 6

3 31 12 19 15

4 38 12 26 7 LAB 1 2 3 4 5 6 7 8 9 10

TPP

(TP) 3 7 12 16 19 21 22 22 21 19

APP

(AP) 3 3.5 4 4 3.8 3.5 3.14 2.75 2.33 1.9

MPP

(MP) 3 4 5 4 3 2 1 0-1 -2

14) Law of Variable Proportions- The law states that if we go on using more and more units of a variable factor (Labour) with a fixed factor( land , Capital) the total output initially increases at an increasing rate but beyond certain point, it increases at a diminishing rate and finally it falls. This can be studied in three stages (I, II, and III) Total Physical Product (TPP) :- The total output of commodity at a particular level of employment of an input(Labour), Average Physical Product (APP):- Dividing the TPP by the number of inputs. Marginal Physical Product (MPP):- An addition made to the TPP by employing an additional unit of a variable input

TPP & MPP Relationship:- a) When MPP is positive, TPP increases at increasing rate (I stage) b) When MPP is zero, TPP is maximum,(II stage) c) When MPP is negative, TPP is falling(III stage) ( or)

(i) It means that TPP increases at an increasing rate and consequently MPP rises. It is due to (a) more efficient utilization of fixed input and (b) division of labour and specialisation due to increase in the quantity of variable input. (3)(ii) It means output increasing in greater proportion than the increase in all input simultaneously and in the same proportion. It is due to (a) more division of labour leading to specialisation that increases productivity and(b) use of specialized machines

15. Equilibrium Price /Market equilibrium: - It is a price at which its quantity demanded and quantity supplied are equal. It is also called market price. (a) If .decrease. in demand is equal to decrease in supply, there will be no change in the equilibrium price. In the figure, decrease in dd = decrease in SS = E1E2 Equilibrium price remains the same at OP. (1½)

(b) If .decrease. in demand is greater than decrease in supply, the equilibrium price will fall. In the figure, decrease in dd = AE, while decrease in supply is lower i.e. BE1 Therefore, equilibrium price falls from OP1 to OP2

16. The factors affecting market supply are : . The factors affecting market supply are

1. Technological changes : Technological advancement in the field of production lower the marginal cost of production Since, MC curve is essentially the supply curve, technological progress shifts supply curve to the right.

2. Input price changes :- Increase in the price of factor inputs leads to an decrease in supply & the supply curve shifts to the left conversely, if the price of factor factor inputs decreases, the supply increases and the supply curve shifts to the right.

3. Change in the excise tax rate : If product the marginal cost, which curve to the left. If the ensue duty decreases, the Mc would decrease and the supply curve would shift to the right.

Changes in the prices of related goods : An increase in the price of a substitute good in predictor shifts the supply curve of a good to the right, white a decrease in the price of a substitute good, would shift the supply curve of a good to the left4. No. of suppliers.:- When suppliers more, the supply will be more of any commodity other wise less.

Diagrams may be used. 17. Deficient demand:- Deficient demand refers to the situation when AD is

less than AS at full employment. 18.. Barter System: The direct exchange of goods for goods without the use of money

called barter system. 19. Excess demand leads to inflationary gap, it is the situation when AD is more than AS at full employment

20.The sum of average propensity to consume and average propensity to save is equal to one because

Y = C + S

Dividing both sides by Y we get

= +

1 = APC + APS

i.e. APC = 1-APS

APS = 1-APC and K = 2 when MPC and MPS is same.21. Primary Deficit – Difference between fiscal deficit and interest payments.(PD=FD-Interest payments . Revenue Deficit = Difference between revenue expenditure and revenue recipts

22. Calculate Personal Income from the following data : 3 (Rs. crores)(i) Undistributed profits of corporations 20(ii) Net domestic product accruing to the private sector 500(iii) Corporation tax 55(iv) Net factor income from abroad (—) 10(v) Net current transfers from government 15(vi) National debt interest 40(vii) Net current transfers from the rest of the world 15 OR

Calculate Gross Value Added at MP from the following data. 3MSl.NoItems Rs. In lakhs1 CFC/ Depreciation 152 Sales in domestic market 2503 Exports 504 Opening stock 205 Purchase of raw material 1506 Closing stock 307 Import of raw material 25ANS = 2+3 –(6-4) = (250+50)- (30-20) = 290

= ii+iv+v+vi+vii= 500+(- 10)+15+40+15=560= 560-iii-I =560-55-20 =485

23. Functions of Money:- I) A unit of value – The values of different goods can be expressed through money. ii) A medium of exchange – People can exchange goods and services through the medium of exchange. iii) Standard deferred payments- Future truncations can be carried on in terms of money. iv) A store of value – Value of goods can be stored in the form of money. (or)

:Lack of double coincidence of wants – it is very difficulties to get the same persons who can be exchanged each other with their goods

Lack of a common measure of value – no proper counting system possible in the absence of common measure of value .

Lack of standard of deferred payments, - Future payments by goods create many problems, they have to be stated in specific goods or services which may involve disagreement over the quality of goods etc., and

Lack of store of value- storing commodities leads deterioration or appreciation in the value of goods. Only durable goods can be stored others cannot be done or stored in the same way.

24. Plan Expenditure – which is incurred for current development and investment outlays due to plans proposals: Non plan expenditure –which is incurred on routine functions of the govt. like interest payments, defence services.Development Expenditure – which is incurred on provision of economic and social services(development of agriculture ad industries, transport, road, communication, health and education, medical etc.Non-development expenditure – which is incurred on the provision of general services like police, defence, administration, grants to state govts . etc (or)

PUBLIC EXPENDITURE:a) Revenue Expenditure – incurred for the normal running of govt administration deptt. Eg .interest payments, subsidies, and defence expenditure, Grants given to state Govt. etc. Which are neither create assets nor reduce the liability b) Capital expenditure consists of expenditure on acquisition of assets like land, Construction of any buildings, machinery equipment, investment in shares, Re-Payment of loans, etc. , Which creates assets or reduce liability

25. . MULTIPLIER:- The investment multiplier is the ratio of change in income to change in investment. Symbolically, multiplier (K) = ∆Y/∆I. The value of he multiplier (K) depends upon the value of marginal propensity to consume(MPC). There is a direct relationship between K and MPC i.e., MPC increases K also increases and vice verse. Ans.K= 5 ( ∆I. Rs. 200, ∆Y=Rs. 1000 and MPC =0.8, )

26. DISEQUILIBRIUM IN BOP: It is a state of either deficit BOP status or surplus BOP status. Equilibrium in BOP is achieved when the net balance of all receipts & payments is zero.CAUSES OF DISEQUILIBRIUM: Disequilibrium in BOP is caused by a number of factors, broadly categorized as (a) economic factors (b) political factors (c) social factors. Following are the details:ECONOMIC FACTORS: -Huge development expenditure: Huge development expenditure by the government owing to which there are large scales imports. It may cause a deficit BOP dis equilibrium.

Business cycle: Business cycles in terms of recession, depression, recovery & boom. A period of boom may witness a large scale export of a country. Accordingly a ‘surplus BOP disequilibrium’ may occur.High rate of inflation: High rate of inflation in domestic market, compelling large scale imports of essential goods. This drives the economy towards deficit BOP disequilibrium ( or)Current account: It is that a /c which records imports & exports of goods & services & unilateral transfers. It records the following transactions :

i. Exports & imports of goods (or of visible items).ii. Export & import of services (or of invisible items).

iii. Unilateral transfers from one country to the other.

27. FOREIGN EXCHANGE RATE: It is a rate at which the currency of one country I exchanged with the currency of other country eg., $1 = Rs.48 or one Indian rupee 1/48 th $.Determination of the FER – The rate is determined in the foreign exchange market by the interaction of the demand for and supply of foreign exchange currenciesDemand for Foreign exchange comes from a) domestic resident to purchase goods and services from other countries b)for sending gifts to foreigners c) by the domestic residents to purchase financial assets in a particular country d) Speculation purposeSupply of Foreign exchange comes from a) the foreigner’s purchasing home currency goods and services through exports b) the foreigners who invest in home country through joint ventures

A:The following are advantages of fixed exchange rate system.:- ( MERITS )

Stability : It ensures stability, in the international money market/exchange market. Encourages International Trade: Fixed exchange rate system implies low risk and low uncertainty of future payments. It encourages international trade. Co-ordination of Macroeconomics Policies: Fixed exchange rate helps co- ordination of macroeconomics policies across different countries of the world.

DEMERITS :- Huge International Reserves: Fixed exchange rate system is often supported with huge international reserves of gold. This is because different currencies are directly or indirectly convertible into gold.Restricted Movement of Capital: Fixed exchange rate (owing to huge back-up of international reserves) restricts the movement of capital across different parts of the world.: Discourages ventures Capital: Fixed exchange rate discourages venture capital in the international money market.

28. Revenue Receipts:- It refer to the receipts of the govt. which don’t create any liability and cause any reduction in the assets of the govt. It may be divided into two, tax revenue ( direct tax, e.g. income tax and indirect tax, e.g. excise duty) and non-tax revenue( eg. Fees,fines and penalties)CAPITAL RECEIPTS:- It refers to those receipts of the govt. which create a liability / cause reduction in its assets. Loans raised by the govt. from the public( market loans) b) borrowing’s by the govt. from the central bank and other parties through the sale of treasury bills. C) Loans received from foreign govt and international financial institutions(world bank / IMF) D) Recoveries of loans granted to state and UT govts.

And other parties E) small savings and deposits in PPF F)PSU disinvestment – selling shares /securities of PSU..Give reasons, categorise the following into revenue receipts and capital receipts ? ( 4M ) i) Recovery of Loans., Capital receipts as it decrease assets ii) Income tax. Revenue receipts as neither increase liability nor reduce assets iii) Dividends on Investments made by Government. evenue receipts as neither increase liability nor reduce assets iv) Sale of public sector undertaking. Capital receipts as it decrease assets

29. . Commercial banks are those financial institutions which accept deposits from the general public, and make advances( or offer loans) to he consumers and investors with a view to earn profits.

FUNCTIONS OF COMMERCIAL BANKS : 1. Accepting of deposits – accept money in the form of deposits from the public. People can deposit their cash balances with bank in either of the following accounts: a) Fixed Deposits Account, b) Current Deposits Account, No interest is paid by banks on the money kept in current account c) Saving Deposits Account d) Recurring Deposits Accounts etc. 2. Advancing of Loans: Commercial banks provide various types of loans to the borrowers in either of the following forms: a) Cash Credit b) Term Loans/ Demand Loans c) Overdraft, d) discounting of Bills of Exchange and e) Investment of Funds in govt. securities.3. Agency functions:- Transfer of funds through cheques, drafts etc ii) Collection and payments of cheques, bills of exchange on behalf of their customers, iii) Sale and purchase of shares, securities etc., iv Purchase and sale of foreign exchange , Locker facility, Gift cheques, Traveller’s Cheques etc. ( or)

Issue of Currency: The Central Bank is given the monopoly of issuing currency in order to secure control over volume currency and credit. These notes are circulated through out due country as legal tender money. It has to keep a reserve in the form if gold and foreign securities as per the statutory rules against the notes issued by it. It issues notes above Rs.2/-. One Rupee coins and other small coins are issued by the mints of Government.

Bankers to Government: Central Bank acts as the bank of Central and State governments. It carries out al banking business of Government. Government keep their cash balances in the current account with Central Bank. Similarly central bank accepts receipts and makes the payment on behalf of the Government. Also Central bank carries out exchange, remittances and other banking operation on behalf of Government. Central Bank gives the loans and advances for a short period to the Governments. It also manages the public debt of the country.

Bankers Bank & Supervisor: All the scheduled banks are controlled and supervised by the Central Bank. These banks are required to keep certain percentage of their deposits with Central Bank. They can take loans from the Central Bank.

Controller of Credit & Money Supply: Central Bank regulates the supply of money and credit according to the interest of the country. It follows various instruments like (i) Bank rate, (ii) Open Market operations (iii) Cash reserve ratio, (iv)

Moral suasion (v) Marginal requirements. They are the instruments of Monitory policy

.Exchange Control: It maintains the external value of currency. Every citizen should deposit foreign currency they earn with RBI and they can get foreign currency from RBI with application.

Lender of Last Resort: Scheduled banks can take the loans by rediscounting first class bills or short term approved securities, whenever they do not get funds from any other sources.

Custodian of Foreign Exchange Balance: Central Bank maintains the balance of foreign exchange gold and bullions.

Clearing house function: Central Bank clears the cheques received by a bank belongs to other banks issued by the customers without delay.

Collection and publication of data: It collects, completes the data regarding the other banks and publishes this information

30. i) Income is creating in the domestic territory of Singapore and not in India .(ii) No, It is a part of domestic territory of Japan not in India .(iii) Yes, Income is creating in the domestic territory in India . (iv) Yes, (Indian embassy )It is a part of domestic territory of in India .

Product method / Value added method:- . Precautions:

1)Sale and purchase of second hand goods are not included. Because it is not a part of current production.

2) The value of intermediate goods should not be included. Because it will lead to the problem of double counting.

3) Production for self consumption should be included. Because it is a part of national income. Hence its imputed value should be included.

4) Services of owner occupied houses / imputed rent should be included in national income because these are part of the current years production.

5) Own account production of fixed capital should be included; it is a part of final investment expenditure.

Income method:- Precautions:

1. Transfer Incomes: These should not be included in national income. Because these are not part of factor incomes.

2. Income from illegal activities: It is not included in national income. Because these activities are not part of productive activities.

3. Income from sale of Second hand goods: It is not included in national income. Because it is not part of current productions.

4. Windfall gains: These are not included in national income. Because there is no corresponding increase in production.

5. Income received from sale of shares/bonds: It should not be included in national income. Because they are financial transactions.

31. DETERMNATION OF EQUI. LEVEL OF INCOME & Employmnt: There are two approaches a) Consumption and Investment(C+I) b) Investment and Saving approach Determination of Income and EMPLOYEMENT: Full employment equilibrium is a situation, where all the resources of the country get employment. Graphically at this level of national income AD and AS. It implies that the volume of AD is just sufficient for the full utilization of country’s available resources and the production is being done to the maximum possible resources and the production is being done to the maximum possible limit. It means AD is neither in excess nor deficient. This is an ideal situation. Hence there is no gap(neither inflationary and deflationary gap) . Equilibrium:- At equilibrium , the total output of goods and services produced equals the total demand for those goods and services.( Agg.’D’ = Agg.’S’) The particular price level at which equilibrium occurs is known as the equilibrium price level, The level of agg. Employment corresponding to the equilibrium level of agg. Supply is the equilibrium level of employment.Yes, there can be a state of under employment equilibrium. In the below given diagram it is shown at OM output/income .

A

brief explanation about the schedule along with a diagram and its explanation

31. The equilibrium level of income and output is that level at which planned saving and planned investment are equal. (1)SS. is the saving curve that shows planned saving at different levels of income. I I. shows fixed level of investment as it is assumed that investment is given and is constant, OQ is the equilibrium level of income and output as at this level, planned saving and investment are equal If planned expenditure is less than planned output inventories will increase. So output will be reduced till planned expenditure and planned output are equal. (see schedule in the next paragraph)..What happens if savings exceed planned investment? In the diagram, at ON level of income (output), RN amount of saving exceeds SN amount of investment by an amount equal to RS. This shows households are consuming lesser than the investment of firms ( i.e, level of output). As a result firm’s stock of unsold goods will pill up, i.e., there will be undesired

Income

(Y)

Consumption

(C)

Investment

(I)

AD =

C+IAS = Y Remarks

0 50 100 150 0

AD>AS

Employment

100 100 100 200 100

200 150 100 250 200

300 200 100 300 300AD=AS

(Full employment)

400 250 100 350 400 AD<AS

Employment500 300 100 400 500

Y (C) (S) (I)

Remarks

0 50 -50 100

S<I100 100 0 100

200 150 50 100

300 200 100 100 S = I

400 250 150 100 S>I

and unplanned build-up of inventories, firms will cut back production and reduce employment leading to fall in income. The tendency of reducing out put and income to fall will continue until it reaches the OQ equilibrium level of income (output) at which planned saving EQ is exactly equal EQ planned investment EQ.

32. a) 205 Crores b) 205 Crores

MOCK PAPER FOR MARCH 2009 IIECONOMICSTime : 3 Hrs. Max. Marks - 100Note :i. All questions in both the sections are compulsory.ii. Marks for questions are indicated against each.iii. Question Nos. 1-5 and 17-21 are very short-answer questions carrying 1 mark each. They are required to be answered in one sentence each.iv. Question Nos. 6-10 and 22-26 are short-answer questions carrying 3 marks each. Answer to them should not normally exceed 60 words each.v. Question Nos. 11-13 and 27-29 are also short-answer questions carrying 4 marks each. Answer to them should not normally exceed 70 words each.vi. Question Nos. 14-16 and 30-32 are long-answer questions carrying 6 marks each. Answer to them should not normally exceed 100 words each.vii. Answers should be brief and to the point and the above word limit be adhered to as for as possible. SECTION :A1. Define opportunity cost ?. 1M2. A rise in the price of a good , results in an increase in expenditure on it. Is itsdemand elastic or inelastic? 1M3. What do you meant by MU/MP/MR/MC?:- 1M4. a)Define Fixed cost , b)Variable cost. 1M5. Define market price/ equilibrium quantity . 1M6. State the problems relating to allocation of resources in an economy. (3) 7. Define marginal revenue. State the relation between marginal revenue and average (3)revenue when a firm :(i) is able to sell more quantity of output at the same price.(ii) is able to sell more quantity of output only by lowering the price. 8 Given below is the utility schedule of a consumer for commodity X.The price of the commodity is Rs. 6 per unit. How many units shouldthe consumer purchase to maximize satisfaction? (Assume that utilityis expressed in utils and 1 util = Re. 1). Give reasons for your answer.Consumption Total utility Marginal utility

(units) (utils) (utils) 1 10 10 2 18 8 3 25 7 4 31 6 5 34 3 6 34 0 (3)M9. . Explain the implication of the feature .product differentiation. underMonopolistic Competition. (3) ORExplain the implication of the feature .Freedom of entry and exit of firms.. (3)10. Explain the relationship between AC (AVC) and MC (3)11. A consumer buys 100 units of a good at a price of Rs. 5 per unit. When price changeshe buys 140 units. What is the new price if price elasticity of demand is - 2 ? (4)

12. Explain the effect of rise in the prices of related goods on the demandfor a good X. Use diagrams. ORExplain the effects of rise in income on demand for a good. Use diagram. (4)

13. Complete the following table : 4MOutput Price Marginal Revenue Total Revenue(units) (Rs.) (Rs.) (Rs.)1 -- 10 --2 9 -- --3 -- -- 244 -- 4 --

14. Explain the effects of .increase. in supply of a good on its equilibrium price and (4)equilibrium quantity with the help of a schedule.

15 Define producer's equilibrium. Explain the conditions of producer's equilibrium in terms of Total Cost and Total Revenue. Use diagram.. 6m ( OR )

What is consumer's equilibrium? Explain the conditions of consumer's equilibriumassuming that the consumer consumes only two goods.16. Explain the law of variable proportions with suitable diagram

SECTION : B 17. What do you meant by Excess demand? 1M

18. Define APC and APS./ consumption function / saving function. 1M19. What do you meant by SLR / Cash Reserve Ratio(CRR) / BANK RATE .1M20. What do you meant by . Revenue Deficit ? 1M21.Define macroeconomics ? 1M22. From the following data relating to a firm, calculate its net value added at factor cost : (Rs. in Crores)(i) Subsidy 40(ii) Sales 800(iii) Depreciation 30(iv) Exports 100(v) Closing stock 20(vi) Opening stock 50(vii) Intermediate purchases 500 23. Categorise the following government receipts into revenue and capital receipts Givereasons for your answer.(a) Receipts from sale of shares of a public sector undertaking.(b) Borrowings from public.(c) Profits of public sector undertaking (3)24. List three sources each of demand and supply of foreign exchange (3)25. Account any three types of deposits in commercial banks. ( 3)26. Explain the deflationary gap through diagram. ( 3)27. Describe the following functions of money :- 4M(a) Medium of exchange(b) Standard of deferred payment

28. Distinguish between current account and capital account of balance of payments accounts mention two items of each of these accounts? 4M

29. Give the difference between Direct Tax & Indirect Tax / Difference between capital receipts and revenue receipts. 4M

30..Explain the steps involved in estimation of national income by income and expenditure methods . ( 6M)

NVAfc=ii+(v-vi)-vii-iii+i=800+(20-50)-500-30-(-40) =280Note= NIT(Ind.Tax_Sub)Sales included exports.

31.Calculate Personal Disposable Income (or) GNP at MP from the following data

(Rs. crores)1. Net factor income from abroad (.) 602. Gross national disposable income 10503. Personal Tax 1104. Savings of private corporations 405. National income 9006. Indirect tax 1007. Corporation tax 908. Net national disposable income 10009. National debt interest 3010. Net current transfers from abroad 2011. Current transfers from government 5012. Miscellaneous receipts of the government administrative departments. 30

13. Private income 700

32. Explain the meaning of equilibrium level of income and output with the help ofsaving and investment curves. If planned expenditure is less than planned output,what changes will take place in the economy? (or)

30. Will the following be included in Gross National Product? Give reasons for your answer:1. Profits earned by a foreign company in India. No, it is factor income to abroad2. Money received from sale of shares. No, It is a financial tractions / money claims3. Salary paid to Americans working in Indian embassy in America., Yes, it is a part of domestic territory of India, 4. Money received from sale of old house., No it makes double counting5. Scholarships received by a student., No, it is a transfer income 6. Remittances from abroad. No , It is also transfer income to India

Expected Answers1. The Opportunity cost of a given activity is defined as the value of next best activity.

PDI=13-7-4-3-12=700-90-40-110-30=430

GNP at MP=5+6+(2-8)=900+100+50 =1050

2. When there is a direct relation between price and expenditure, there should be inelastic in demand.3. An additional Utility/Product/Revenue/cost to the total Utility/Product/Revenue /Cost by consumption of extra good/employing extra labour/ selling extra good/making extra output.4. The cost which does not change according to output e.g Rent, Minimum telephone bill, wages to permanent staff, interest on capital and b) The cost which varies / changes according to output E.g. Labour costs and raw material costs, power etc.

5. Equilibrium Price /Market equilibrium: - It is a price at which its quantity demanded and quantity supplied are equal.

6. 1. What to produce:-If refers to which goods and services will be produced and in what quantities with the limited resources i.e. consumption goods or capital goods.

2. How to produce :- It refers to the choice of methods of production of goods & services i.e. whether labour intensive or capital intensive technique is to be adopted taking into consideration the proportion of capital and labour in an economy.3. For whom to produce.:- It concerns with the distribution of income & wealth which refers to who earns how much or who has more assets than others.7. Marginal revenue is the addition to total revenue from producing one more unit of

output (1),

(i) MR = AR at all the output levels (1)(ii) MR will be less than AR at all the output levels (1)8. The consumer will purchase 4 units because at this consumption level marginal utility equals price. (1)At consumption level of less than 4 units MU is greater than price. Therefore there is scope of increasing gain by purchasing more. (1)If he buys more than 4 units MU becomes less than the price. Therefore, there is scope of increasing gain by purchasing less. (1)

9. . Product differentiation means that buyers differentiate between the products produced by different firms. Therefore, they are willing to pay different prices for the products of different firms. Different groups of buyers prefer products of different firms. This gives an individual firm some monopoly power, i.e. power to influence the demand for its product by changing price. (3) OR The freedom ensures that firms earn just the normal profits in the long run. If the existing firms earn .above-normal. profits, new firms enter the industry, raise supply, which brings down the price. The profits fall till each firm is once again earning only the normal profits. If the existing firms are having losses, the firms start leaving, supply falls and price goes up. The price continues to rise till the losses are wiped out and firms are just earning normal profits. (3)10.Relationship between AVC & MC (AC and MC):-When AVC is falling, MC lies below the AC curve ( MC<AVC),When AVC minimum and constant, AVC=MC, MC curve must cut the AVC curve at the minimum point of AVC, When AVC is rising, MC lies above AVC Curve (MC>AVC)

11. The new price is 4

12. INCOME EFFECT:-Generally as income of a consumer increases, the consumer may buy more or less of a product. If he/she buys more product means it is a Normal good, its demand curve shifts right wards and less product means it is Inferior goods its demand curveshits left wards. (or) RELATED GOODS: (Both Substitute goods and Complementary goods) Substitute goods are those goods, which can be used in place of each other. E.g coffee and tea, and gur and sugar. An increase in the price of a substitute good (Coffee) causes an increase in the demand for the commodity (Tea) Its demand curve shifts to rightward,Complementary goods are those goods, which jointly satisfy a given want. E.g. car and petrol; pen and ink. Etc., In case of complementary goods , the demand for a commodity rises wit the fall in the price of other commodities. Cars and petrol are Complementary goods. If the price of the petrol falls its demand will rise, also will raise the demand for cars..13.

Output (Units)

Price (Rs.)

MR (Rs.)

TR (Rs)

1 10 10 102 9 8 183 8 6 244 7 4 28

14. Increase in supply means more quantity supplied at the given price. Supply curve shifts to the right from S1 to S2. This creates excess supply (=E, A) at price OP. Since the firms are not able to sell what they produce, Competition among firms lead to fall in price. Fall in price leads to rise in demand and fall in supply. These changes continue till price falls to OP2 OP2 is the new equilibrium price and OQ2. equilibrum quantity. See equilibrium price diagram.

15. . The producer of a good is in equilibrium at that level of output of the good at which he earns maximum profit. (1)There are two conditions of producer.s equilibrium :(i) The difference between TR and TC is maximum.(ii.) Total profit falls if one more unit of output is produced. (2)In the diagram, OQ is the equilibrium output with profit equal to AB = AQ . BQ. AB is the maximum vertical distance between TR and TC. If more than OQ output is produced total profits fall.Total cost and total revenue scheduleOutput (Units)

TR TC Profit

1 10 15 52 18 12 63 24 21 34 28 32 4 (OR)

Consumer’s equilibrium means allocation of income by a consumer on goods and services in a manner that gives him maximum satisfaction.

The producer will produce 2 units because his profits are maximum at thislevel of output.

The two conditions of Consumer’s equilibrium are :- (i) Ratio of marginal utility to price in case of each good is the same i.e. MUx / Px ; MUy / Py = (2)(ii) MU of a good decreases as more of it is consumed. (2)16. (i) It means that TPP increases at an increasing rate and consequently MPP rises. It is due to (a) more efficient utilization of fixed input and (b) division of labour and specialisation due to increase in the quantity of variable input. (3)(ii) It means output increasing in greater proportion than the increase in all input simultaneously and in the same proportion. It is due to (a) more division of labour leading to specialisation that increases productivity and(b) use of specialized machines ( SEE Previous paper).

SECTION : B 17. EXCESS demand:- EXCESS demand refers to the situation when AD is

greater than AS at full employment.

18. The relationship between consumption / saving and income.19.. Cash Reserve Ratio(CRR) A % age of the banks deposits are required to deposit with the RBI

BANK RATE: the bank rate is the minimum rate at which the central bank of a country is prepared to give credit to the commercial banks 20... Revenue Deficit = Difference between revenue expenditure and revenue receipts

21. Study of aggregates 22. Ans. See in the question paper.23/29Revenue Receipts:- It refer to the receipts of the govt Which don’t/neither create any liability and cause/ nor any reduction in the assets of the govt. It may be divided into two, tax revenue ( direct tax, e.g. income tax and indirect tax, e.g. excise duty) and non-tax revenue( eg. Fees,fines and penalties)23.CAPITAL RECEIPTS:- It refers to those receipts of the govt. which create a liability / cause reduction in its assets. Loans raised by the govt. from the public( market loans) b) borrowing’s by the govt. from the central bank and other parties through the sale of treasury bills. C) Loans received from foreign govt and international financial institutions(world bank / IMF) D) Recoveries of loans granted to state and UT govts. And other parties E) small savings and deposits in PPF F)PSU disinvestments – selling shares /securities of PSU..24. Sources of demand for foreign exchange : (i) Importers, (ii) Tourists going ,abroad, (iii) Investors who want to make investments in other countries. (½x3)Sources of supply of foreign exchange.:- (i) Exporters, (ii) Foreign tourists, (iii) Remittances from abroad, etc. (½x3)25. Accepting of deposits – accept money in the form of deposits from the public. People can deposit their cash balances with bank in either of the following accounts: a) Fixed Deposits Account, b) Current Deposits Account, No interest is paid by banks on the money kept in current account c) Saving Deposits Account d) Recurring Deposits Accounts etc. 26. Marginal revenue is the addition to total revenue from producing one more unit of output (1), (i) MR = AR at all the output levels (1)(ii) MR will be less than AR at all the output levels (1)27. Ans is given in the previous mock paper.

28. Current account: It is that a /c which records imports & exports of goods & services & unilateral transfers. It records the following transactions :Exports & imports of goods (or of visible items).b) Export & import of services (or of invisible items).c) Unilateral transfers from one country to the other.CAPITAL ACCOUNT: It is that a /c which records all such transactions between residents of a country & rest of the world which cause a change in the asset or liability status of the residents of a country or its government. When balance of payment is not balanced by current account, it has to be balanced by capital account. It includes short term as well as the long-term international borrowing and lending gold transactions, it any, also forms part of the capital account.29. Tax Revenue:- A tax is a legally compulsory payment by the people to govt.( Direct Tax and Indirect Tax). The taxes are classified according / on the basis of incidence and impact of a tax.. For exampleDirect Tax– When the incidence and impact of a tax is on the same person . (or)Those taxes levied immediately on the property and income of persons, and that are paid directly by the consumer to the govt. Which are not shiftable, Eg. Income tax, Corporation tax, wealth tax etc. Indirect Tax – When the incidence and impact of a tax is on the different persons. (or) When liability to pay a tax is on one person and the burden of that tax falls on some other person, which are shiftable to others Eg. Custom duties, excise duties, sales tax, service tax etc.

30. Steps of income method:The following steps are involved in the estimation of national income by using income method.

1. Identification and classification of producing enterprises.

2. Classification of factor income.

3. Estimation of factor income.( CE, OP, MI )

4. Estimation of domestic factor income ( SUM OF above three)

5. Estimation of national income (i.e. NNP at FC) by adding NFIA

Expenditure method:-

Under this method national income is estimated by aggregating all the final expenditure in an economy during a year. This expenditure method is also known as consumption and investment method, or income disposable method.

Steps of expenditure method:- To identify economic units incurring final expenditure.

1. Classification expenditure: -

a) Private final consumption expenditure

b) Government final consumption expenditure

c) Gross fixed capital formation (or) Gross fixed investment expenditure

d) Change in stock or change in inventories or inventory investment.

e) Net acquisition of valuables

f) Net exports.

2. Measurement of final expenditure on domestic product.

3. Estimation of net factor income from abroad. AND Estimation of national income.

31. Ans is given in the question paper : 32.. Ans is given in the previous mock paper.

.

KENDRIYA VIDYALAYA SANGATHAN

MODEL PAPER SUB:-ECONOMICS Max.Marks:100

Time : 3 HoursGeneral Instructions:i. All questions in both the sections are compulsory.ii. Marks for questions are indicated against each.iii. Question Nos. 1-5 and 17-21 are very short-answer questions carrying 1 mark each. They are required to be answered in one sentence each.iv. Question Nos. 6-10 and 22-26 are short-answer questions carrying 3 marks each. Answer to them should not normally exceed 60 words each.v. Question Nos. 11-13 and 27-29 are also short-answer questions carrying 4 marks each. Answer to them should not normally exceed 70 words each.vi. Question Nos. 14-16 and 30-32 are long-answer questions carrying 6 marks each. Answer to them should not normally exceed 100 words each.vii. Answers should be brief and to the point and the above word limit be adhered to as for as possible.

SECTION –A (INTRODUCTORY MICRO ECONOMIC THEORY)

1.Define Marginal Revenue 1m2.What does a point below production possibility curve indicate? 1m3. Which cost may there when output is even zero. 1m4. State the condition of producer’s equilibrium. 1m5. Draw unitary elasticity of supply. 1m6.Explain any two central problems facing our economy. 3

7. Define law of demand? Draw a unitary elasticity of demand with the help of a demand schedule. 1,1,1 =38. Draw the supply curves showing a) elasticity of supply equal to1 b) elasticity of supply greater than 1 c) elasticity of supply lessthan 1. 1,1,1 =3

9. . State any three causes of a leftward shift of supply curve. 3

10. Explain the relationship between average variable cost and marginal cost with he help of diagram. 3M (or)

What is the relationship between Total revenue and Marginal revenue with diagram?11.. The total fixed cost of a firm is Rs. 12. given below is its marginal cost schedule. Calculate total cost and average variable cost for each given level of output. 2,2 =4

Output(units) 1 2 3 4Marginal Cost (Rs.) 9 7 2 4

12.The quantity demanded of a commodity at a price of Rs. 10 per unit is 40 units. Its price elasticity of demand is (-2). Its price falls by Rs. per unit. Calculate its quantity demanded at the new price. 4M13. . What is equilibrium price? What happens to equilibrium price of a commodity when its demand increases? 4M

14. Explain the main features of monopolistic competition. 6M 15. Explain the law of variable proportion. (6M) 16. Explain the factors that affect the market demand of a commodity. (or)

Distinguish between increase in demand and expansion of demand (rise in quantity demanded). Use diagram. (6)

SECTION –B (INTRODUCTOR MACRO ECONOMIC THEORY)

17. Define macro economics. 1M 18. Give one point of difference between macro and micro economics. 1M 19. When is there a deficit in the balance of trade? 1M 20. What is meant by a surplus budget?. 1M 21. What is SLR/CRR. 1M

22..Find out (a) Personal disposable Income, b) Personal Income and c) private Income from the following data.

(Rs. In crores) i) Payments of direct taxes by the households 650 ii) Corporation tax 150 iii) Household final consumption expenditure 2450 iv) Savings of the a private corporate sector 350 v) Interest on national debt 200 vi) Saving of the households 750

24. ExplainBriefly the meaning inflationary gap and deflationary ? (3M)25.. As a result of increase in investment by Rs 75 crores, national income rises by Rs.

300 crores. Calculate a marginal propensity to save (MPS)?

26. . Define (a) Fiscal deficit (b) Budget deficit (c) Revenue deficit ?27. . Give any four functions of a Central Bank (RBI)?

28.. Give reasons, categorise the following into revenue receipts and capital receipts ? ( 4M ) i) Recovery of Loans. , ii) Income tax. iii) Dividends on Investments made by Government., iv) Sale of public sector undertaking.

29. State the four function of Money. Describe any one of them ? ( 4M )

30. Explain how foreign exchange rate is determined in a foreign exchange market ? ( 4M )

OR Distinguish between current account and capital account of balance of payments

accounts. mention two items of each of these accounts ?31. Explain with the help of diagram the determination of equilibrium. Can the

economy be in equilibrium at less than full employment ?32.. Distinguish between:a) Value of output and value added b) Factor income and transfer receiptc) Intermediate goods and final goods

OR Explain the components of factor income ( NDP at fc )

MARKING SCHEME

Q.No EXPECTED ANSWERS / VALUE POINTS Distribution of Marks.

1-5 1)An additional revenue made to total revenue by sale of an extra unit of output.

2) Underutilization of resources( see two points inside PPC)3) MR=MC=P and MC is rising4) Fixed cost 5) Diagram. 1M

1

111

6 a)What to produce :-e.g:-Type goods whether consumer goods or capital goods with in available resources; b) How to produce :- e.g:Type of technique – Whether capital intensive where capital more than labour and Labour intensive techniques where labour is more than capital c) Whom to produce :-e.g. Distribution of income by way of wages , interest , rent and profits ( any two ) brief explanations diagram see Q.No.1

111

7 a) Inverse relation between price and demand i.e.,when price increase and demand for a commodity decreases and vice verseb) Schedule :-Shows q. of demand at different price c)Demand curve :- ‘DD’ curve slopes downward from left to right.

11,1

8 a) Relatively elastic SUPPLY ( ‘SS’ Curve flatter) b) Relatively inelastic SUPPLY( ‘SS ’Curve Steeper) c) Unitary elasticity (‘SS’ curve Goes upward straight from origin. ( OR)A straight line which interests the X axis in its positive range implies Es=>1 and negative range implies <1 and A straight line supply curve which passing through the origin implies Es=1 irrespective of how steep or flat it is. (Geometric Method Curves)

1

1

1

9 1.Cost consumption technology, which leads making cost is high and in turn supply will be low2.A rise in the price of inputs:-wages/material cost is high supply will be low3.A rise of excise duty/tax leads to making cost high then supply falls.

Note:- In the above cases the supply curve shifts left side.In the opposite cases like cost saving technology, fall of input cost/factor cost and a fall of excise duty/tax the supply curve shift right side and it shows supply increases.

11

1

11 TC 12 21 28 30 34AVC 0 9 8 6 5.5Output 0 1 2 3 4Here, the condition we should apply that at zero output both TC and TFC is equal and TVC always zero at this output.

22

12 Table 1mark, Formula 1m, Calculation 1m and correct answer 1mP 10 6 Ed=(-2) and Formula

Answer = 48Q 40 ?

111,1

(P) (D)1 1002 803 604 405 20

13Equilibrium Price /Market equilibrium: - It is a price at which its quantity demanded and quantity supplied isequal. It is also called market price.

Excess demand pushes up the market price by causing competition among the buyers. Deficient demand leads to decrease the price due to competition among the sellers.

111,1

10 (AC and MC):- When AVC/AC is falling, MC lies below the AC curve ( MC<AVC),When AVC minimum and constant, AVC=MC,MC curve must cut the AVC curve at the minimum point of AVC, When AVC is rising, MC lies above AVC Curve (MC>AVC) (OR)When MR is positive (MR>0), TR risesWhen MR is zero(MR=0), TR is maximumWhen MR becomes negative (MR<0),TR falls

Diagram &Schedule

1

11

1

1111

14 MONOPOLISTIC COMPETITION:-. A market situation in which competition among the monopolies is seen for buying or selling differentiated product with freedom of entry and exists is known as monopolistic competition. It is also known as imperfect competition. Because both perfect competition and monopoly present. Main features:- 1. There are large number of buyers and sellers in the market. 2. There is product differentiation. i.e., each firm produces a brand or variety of the same product and 3) there is free entry or exit of firm in the long run.4) Downward slopes elastic demand curve(AR and MR) and MR lies below AR 5) The equilibrium condition( profit maximization) is MR= RC and MC is rising6) Selling cost;- To attract customers from other brand of a product to their own brands selling cost or advertisement cost incurred. 7) E.g. for monopolistic competition is toothpaste, soaps, lipstick etc.1) Large Number of sellers and sellers in imperfect competition.

2) There is a product differentiation 3) All the firms are price makers of their own product.4) Factors of production are mobile. Not rigid5) ) Price is greater than marginal cost6) ) ‘DD’ curve / AR and MR curves slopes down wards. (>1).7) There is Selling costs(Brief explanation with diagram of DD curve.

111111

15 Law of Variable Proportions- The law states that if we go on using more and more units of a variable factor (Labour) with a fixed factor( land , Capital) the total output initially increases at an increasing rate but beyond certain point, it increases at a diminishing rate and finally it falls. This can be studied in three stages (I, II, and III) Total Physical Product (TPP) :- The total output of commodity at a particular level of employment of an input(Labour),

111

1

MR

TR

MR

MR

Average Physical Product (APP):- Dividing the TPP by the number of inputs. Marginal Physical Product (MPP):- An addition made to the TPP by employing an additional unit of a variable input

TPP & MPP Relationship:- a) When MPP is positive, TPP increases at increasing rate (I stage) b) When MPP is zero, TPP is maximum,(II stage) c) When MPP is negative, TPP is falling(III stage)

APP & MPP Relationship:- a) When APP rises, MPP >APP ( I stage) b) When APP is maximum , APP = MPP (Stage II) and c) When APP decline, MPP<APP. (III Stage) (use schedule and diagram).

11

16 Expansion demand due to price change and Increase in demand is due to other than price change. Previous one is movement along with same demand curve. Later one is shifting ‘DD’.Expansion due to price falls, Increase demand due to Income rise.

ORDeterminants of market demand: i) Price of the commodities, ii) Income of the consumers iii) Price of related goods and iv) Tastes and preferences of the market/ consumers (Give a brief explanation for each points

1

1

2+2

2,2,2

17-21 17.Study of aggregates, (Ag.D, Ag.S, NI)18.Price theory and income theory19.When Imports are greater than exports.20. The Govt. total revenue is greater than total expenditure.21. Statutory reserve ratio/ Cash Reserve Ratio ( Monetary policy)

11111

22 a) Personal Disposable income:- 2450 + 750 =3200( P.Exp. + P.Savings)b) Personal income:- 3200+650=3850 ( PDI+ D.Tax)c) Private Income:-3850+150+350 (Pers.I + C.T.+ Savings pvt.C.Sector

111

Expansion

LABOUR 1 2 3 4 5 6 7 8 9 10

TPP(TP) 3 7 12 16 19 21 22 22 21 19

APP(AP) 3 3.5 4 4 3.8 3.5 3.1 2.8 2.3 1.9

MPP(MP) 3 4 5 4 3 2 1 0 -1 -2

AS

AD

Y

Agg

rega

te

dem

and/

ex

pend

itur

e

AD1

Output /employment/incomeXMO

Full employment

Excess Demand/

Inflationary gap

23Meaning of deficient demand:

When aggregate demand short

fall than aggregate supply

at full employment level

than a situation of deficient

demand exists. Deficient

demand leads to deflationary

gap, and rise price, in the economy.

1

1

1

24 K= ∆Y/ ∆I = 300 / 75 = 4 K = 1 / MPS, Therefore MPS = 0.25

1,11,1

25 TYPES OF DEFICITS:- Budgetary Deficit – Excess of all expenditure on both revenue and capital accounts(TE-TR ) A)Revenue Deficit – Excess of revenue expenditure over revenue receipts. ( RE-RR) B) Fiscal Deficit – It is equal to the total borrowings and other liabilities of the govt. It indicates the total amount of borrowings by the government. It leads inflationary pressure (or)Fiscal Deficit:- Total budget expenditure – Revenue Receipt – Non Debt Capital Receipts (Borrowings)Budget deficit:-Total budget expenditure – Total Budget Revenue Revenue Deficit:-Revenue expenditure – Revenue Receipt

1

11

26 It is an apex institution that controls and regulates the monetary and banking system of the country.Functions:- 1) Issuing currency notes:- The RBI has monopoly power to issue currency notes in the country. Except one rupee note and coins other notes are issued time to time. 2) Banker to the Government: It act as banker, agent and financial adviser to the government. 3) Banker to commercial Banks:- It performs the functions of a banker to all other banks, giving advices as well as money to any commercial bank needed. 4) Lender of the last resort:- It helps the commercial banks in times of financial difficulties. 5) Custodian of nation’s stock of foreign exchange reserves:- It also functions as the custodian of nation’s stock of foreign exchange reserves. 6) Clearing house function:- It performs the functions of a clearing house in the banking system of a country. 7) Control of credit:- It controls credit in a country. Credit control seeks to regulate money supply (any one/ two explain).

Eac

h po

int g

ets

½ M

arks

and

ex

plan

atio

n of

one

item

get

s 2m

arks

.

27 a) Capital receipts because it leads to decline in the financial assets of the Government.

b & c) It is revenue receipts because it neither creates liabilities nor it leads to reduction in assets

d) It is capital receipts because it leads to reduction in assets held by the

1

1

1

Government.28 a) MEDIUM OF EXCHANGE: Money by serving as a medium of exchange has reduced the

time and energy spent in Barter system. The major drawback of Barter system was double coincidence of wants. But by acting as intermediary money has facilitated trade and thus exchange between different group of people.b) UNIT OF VALUE: Money serves as a unit of value in terms of which the value of all goods and services are measured. This helps in measuring the exchange values of commodities. The price of all the goods and services can be fixed in terms of money and the problem of expressing of the value of each commodity in terms of quantities of other goods can be avoided.c) STANDARD OF DEFERRED PAYMENTS: The third major drawback of Barter system is that it lacks any unit to be contracted for future payments. This problem is solved with the help of money. The value of money is more stable in comparison to the value of other commodities. Moreover, money has the quality of general acceptability. So money is considered to be suitable standard of deferred payments.d) STORE OF VALUE: Under barter system, storing of value is very difficult in terms of goods. But money has completely solved this problem. Now, savings are done in terms of money. Whereas the value of goods are frequently changing, the value of money is more or less stable. Moreover, goods are perishable, money is not perishable in the same sense. Money occupies less space for storage in comparison with goods. Hence money is the best form of store of value.

2

2

29 Foreign Exchange Rate:– It is a rate at which the currency of one country is exchanged with the currency of other country eg., $1 = Rs.48 or one Indian rupee 1/48 th $.Determination of the FER – The rate is determined in the foreign exchange market by the interaction of the demand for and supply of foreign exchange currencies.Demand for Foreign exchange comes from a) domestic resident to purchase goods and services from other countries b)for sending gifts to foreigners c) by the domestic residents to purchase financial assets in a particular country d) Speculation purposeSupply of Foreign exchange comes from a) the foreigner’s purchasing home currency goods and services through exports b) the foreigners who invest in home country through joint venturesORCurrent account: It is that a /c which records imports & exports of goods & services & unilateral transfers. It records the following transactions :Exports & imports of goods (or of visible items).b) Export & import of services (or of invisible items) like travel, transport, banking @insurance etc.c) Unilateral transfers from one country to the other.CAPITAL ACCOUNT: It is that a /c which records all such transactions between residents of a country & rest of the world which cause a change in the asset or liability status of the residents of a country or its government. When balance of payment is not balanced by current account, it has to be balanced by capital account. It includes short term as well as the long-term international borrowing and lending gold transactions, it any, also forms part of the capital account.

1

1

1

1

30 Equilibrium level of income is determined at the point when aggregate demand is equal to the aggregate supply.Aggregate Demand:- Aggregate demand represents the total expenditure on goods and services in an economy aggregate demand consists of a) consumption expenditure (c) b) Investment expenditure (I) Thus AD = C+IAggregate supply:- It refers to the total production of goods and services in an

economy. In other words, it refers to country’s national product or national incomeThus AS = Y

Determination of the equilibrium level of theme:The equilibrium level of theme is determined at point where AD = AS. The following table and diagram illustrate the idea. Schedule and diagram showing the determinations of equilibrium level of income (Rs in Crores)

The above table and diagram show that the equilibrium level of income is Rs. 300 Crores. Because at this level of income AD (300) = AS (300).Yes (Equilibrium can get Before full employment also)

31 Value of output:-The sum of sales and change in stock( closing stock –opening stock)Value added is defined as the difference between total value of output of a firm and value of inputs bought from other firms. Thus, value added = value of output – value of input used ( intermediate cost)

Name of the Firm Value of output Value of I.C Value Added

ASales – 110,Export –30,

Change in stock –(-) 15

Purchase from ROW –30

Purchase from B -5045

BSales –90

Change in stock (-)10

PurchasesFrom A - 50

30

Final goods:- Those goods which are meant for final use by consumers or firms. These goods are not required to enter into further stages of production or no resale is required. They are called finished goods. E.g., Bread, shirt or scooter etc., Intermediate goods:- Those goods that are used to produce other goods and therefore they always move from one stage of production to another in the manufacturing of a final product. It is required to resale to make final production. E.g., Wheat, flour, cotton, any part for scooter etc.,© Factor income are receipts received by factors of production with tendering/producing any type of goods or services ,in the form of wages, rent, interest and profits etc.,. These are bilateral receipts and are included in the national incomeTransfer receipts are receipts received without tendering/producing any goods or services, e.g., old age pension scholarships, gifts etc.,. These are unilateral receipts and are not included in the national

OREMPLOYEE COMPESATION:- Compensation to employees in the form of wages,

1

1

1

1

1

1

Income

(Y)

Consumption

(C)

Investment

(I)

AD = C+I

AS = Y

Remarks

0 50 100 150 0

AD>AS

Employment

100 100 100 200 100

200 150 100 250 200

300 200 100 300 300 AD=AS(Full employment)

400 250 100 350 400 AD<AS

Employment500 300 100 400 500

salaries and benefits ( employers contribution to social security scheme) makes up the largest single component of factor income. Wages and salaries are payable in cash , kind or both.. It includes 1. wages & salaries, 2. Rent free quarter 3. Commissions, bonus, D.A., Sick Leave Allowances, CPF, LTC ETC., operating surplus:-: Definition: It is the income from both property and entrepreneurship.Components of Operating Surplus:- Income from property, a) Rent, 2)Interest, 3) Royalty and Income from entrepreneurship (Profits),Dividends, Undistributed profits, Corporation TaxIncome of self-employed people is known as mixed income of self-employed such as farmers, small shop keepers, and manufactures, doctors, lawyers and charted accountants etc. Income of such self employed persons cannot be distinguished between wage income and property income. A part of their income is related to wage income. While the other part to property income. So we can call it a mixed income. It is because of this problem, the separate concept of mixed income has been coined in the national income accounting.

32 Income method : xiv+(ix-xii)+xvi+(iv+v+vii)+(viii-x) 20+(55-25)+450+(90+210+100)+(20-40) =880

Expenditure method : i+xv+(iii+xiv)+(xi-xiii)+(viii-x) 250+500+(150+20)+(20-40)+(20-40) =880

KENDRIYA VIDYALAYA SANGATHAN

MODEL PAPER SUB:-ECONOMICS Max.Marks:100

Time : 3 HoursGeneral Instructions:i. All questions in both the sections are compulsory.ii. Marks for questions are indicated against each.iii. Question Nos. 1-5 and 17-21 are very short-answer questions carrying 1 mark each. They are required to be answered in one sentence each.iv. Question Nos. 6-10 and 22-26 are short-answer questions carrying 3 marks each. Answer to them should not normally exceed 60 words each.v. Question Nos. 11-13 and 27-29 are also short-answer questions carrying 4 marks each. Answer to them should not normally exceed 70 words each.vi. Question Nos. 14-16 and 30-32 are long-answer questions carrying 6 marks each. Answer to them should not normally exceed 100 words each.vii. Answers should be brief and to the point and the above word limit be adhered to as for as possible.

SECTION –A (INTRODUCTORY MICRO ECONOMIC THEORY)

1.Define Marginal Revenue 1m2.What does a point below production possibility curve indicate? 1m3. Which cost may there when output is even zero. 1m4. State the condition of producer’s equilibrium. 1m5. Draw unitary elasticity of supply. 1m6.Explain any two central problems facing our economy. 37. Define law of demand? Draw a unitary elasticity of demand with the help of a demand schedule. 1,1,1 =38. Draw the supply curves showing a) elasticity of supply equal to1 b) elasticity of supply greater than 1 c) elasticity of supply less than 1. 1,1,1 =39. State any three causes of a leftward shift of supply curve. 310. Explain the relationship between average variable cost and marginal cost with he

help of diagram. 3M (or) What is the relationship between Total revenue and Marginal revenue with diagram?11.. The total fixed cost of a firm is Rs. 12. given below is its marginal cost schedule. Calculate total cost and average variable cost for each given level of output. 2,2 =4

Output(units) 1 2 3 4Marginal Cost (Rs.) 9 7 2 4

12.The quantity demanded of a commodity at a price of Rs. 10 per unit is 40 units. Its price elasticity of demand is (-2). Its price falls by Rs. per unit. Calculate its quantity demanded at the new price. 4M13. . What is equilibrium price? What happens to equilibrium price of a commodity when its demand increases? 4M14. Explain the main features of monopolistic competition. 6M 15. Explain the law of variable proportion. (6M) 16. Explain the factors that affect the market demand of a commodity. (or)

Distinguish between increase in demand and expansion of demand (rise in quantity demanded). Use diagram. (6)

SECTION –B (INTRODUCTOR MACRO ECONOMIC THEORY)

17. Define macro economics. 1M 18. Give one point of difference between macro and micro economics. 1M 19. When is there a deficit in the balance of trade? 1M 20. What is meant by a surplus budget?. 1M 21. What is SLR/CRR. 1M

22..Find out (a) Personal disposable Income, b) Personal Income and c) private Income from the following data.

(Rs. In crores) i) Payments of direct taxes by the households 650 ii) Corporation tax 150 iii) Household final consumption expenditure 2450 iv) Savings of the a private corporate sector 350 v) Interest on national debt 200 vi) Saving of the households 750

24. Explain Briefly the meaning inflationary gap and deflationary ?(3M)25.. As a result of increase in investment by Rs 75 crores, national income rises by Rs.

300 crores. Calculate a marginal propensity to save (MPS)?

26. . Define (a) Fiscal deficit (b) Budget deficit (c) Revenue deficit ?27. . Give any four functions of a Central Bank (RBI)?

28.. Give reasons, categorise the following into revenue receipts and capital receipts ? ( 4M ) i) Recovery of Loans. , ii) Income tax. iii) Dividends on Investments made by Government., iv) Sale of public sector undertaking.

29. State the four function of Money. Describe any one of them ? ( 4M )

30. Explain how foreign exchange rate is determined in a foreign exchange market ? ( 4M )

OR Distinguish between current account and capital account of balance of payments

accounts. mention two items of each of these accounts ?31. Explain with the help of diagram the determination of equilibrium. Can the

economy be in equilibrium at less than full employment ?32.. Distinguish between:d) Value of output and value added e) Factor income and transfer receiptf) Intermediate goods and final goods

OR Explain the components of factor income ( NDP at fc )

HIGH ORDER THINKING SKILLS (BRAIN STORMING QUESTIONS)

Introduction

Q1) How can the central problem be solved with the help of PPC?

Q2) Why is PPC concave to the origin?

Q3) . Explain the problem of opportunity cost with an example?

Q 4) Draw a PPC and show the following on this curve. Give reasons of this shift. (i)

Q5) Q 5) Growth of Resource., (ii) Underutilization of resource.

(iii) Fuller utilization of resource. .

Q 6) Calculate marginal opportunity cost of good X.

Production

of Good X

Production

Of Good Y

Marginal

Opportunity

cost

0 100

1 90

2 70

3 40

4 0

Theory of Consumer Behaviour

Q1) A rise in the income of the consumer X leads to a fall in the demand for that good

by

that consumer. What is the good X called?

Q2) As you add together the identical demand curves of more and more people, the

market demand curve becomes flatter and flatter on the same scale. Thus this fact

indicate that the elasticity of demand is becoming larger and larger? Explain your

answer carefully?

Hint:- Elasticity of demand is responsiveness of change in demand due to change in

the price of the product. But here, the demand increases due to the changes in the

number of consumer’s in the market not due to change in price of the commodity.

Q3) When demand for good falls due to rise in its own price, what is the change in

demand called?

Hint:- Contraction of demand

Q4) Why do household buy more of a good at a lower price? Explain?

Hint:- Because of real income increase. See mock answer paper determinants of

DD

Q5) Suppose there are 20 consumer for a good and they have identical demand

function

d1(p) = 10 - 3p for any price <=10/3

= 0 price > 10/3

What is the market Demand function?

Hint:- dm(p) = (10 – 3p)20 for p<=10/3

= 0 p > 10/3

Q6) (a) Given Px = Rs 2, Py= Rs 1, income = Rs 12. Find how a consumer spends her

income in order to maximize total utility.

(b) Calculate TU receive by the consumer. Show that the equilibrium condition

for

the consumer are satisfied.

Ans) (a) Consumer will spend 1st and 2nd rupe to buy 1st and 2nd units of Y. This will

give

total of U units. If the 1st two rupees were spent on 1st unit of X then 16 units

would be received.

(b) TU = 93 units

(c) MUx/ Px = MUy/ Py subject to PxX + PyY = M

12/2 = 6/1…. subject to (2)(3) + (1) (6) = 12

Q7) Draw 3 demand curves showing the same value of price elasticity of demand at

all

points. Hint:-See KVS Web site Bhopal for all diagrams .

Q8 ) A consumer consumes goods x. Explain the effects of fall in prices of related goods on

the demand for x. use diagram showing demand for good x on the x-axis and its price on the

y-axis.

Hint:-See Mock Paper

Q9 ) State three causes each for a forward shift and a left ward shift of demand curve.

Hint:-See Mock Paper

Q 10) Why does the demand curve slop downwards? Explain

Note; See Mock Paper

Q 11). A consumer boys 160 units of a good at a price of Rs 8 per unit. Price falls to Rs 6 per unit. How much quantity will the consumer buy at the new price if price elasticity of demand is (-)2) ?

A.

X = 160 = +80X = +80 + 160 = 240The Consumer will buy 240 units

Q.12. As a result of 5% fall in price of a good its demand rises by 12 % find out elasticity of dd & say whether demand is elastic or inelastic & Why ?

A. Ed = % change in qly dd

% change in price

Demand is elastic because percentage

Change in demand is greater than percentage

Change in price

Producer Behaviour & Supply

COST FUNCTION : Output – Cost Relationship of a firm is the cost function of that firm. When Output increases it is IRS , when decreases it is DRS and when production function remains unchanged it exhibits CRS. TOTAL COST: The cost that a firm incurs to employ fixed input is called Total

Fixed Cost and the cost that a firm incurs to employ variable input is called TVC. Addition of TVC and TFC is called Total Cost .

AVERAGE COST: Cost Incurred by a firm on per unit of production is known as Average Cost

(AC) = TC , AVC = TVC .:, AFC = TFC Q Q Q

TC = TVC + TFC TVC = TC - TFCTFC = TC - TVC

MARGINAL COST: Change in total cost due to change in production of additional unit of output is known as Marginal Cost.

DIAGRAMS:- Production and cost

Q1) Complete the folloing table and identify the 3 phases of the law of variation proportion variation.

Unit of Variation TPP APP MPP

AC = AFC + AVC AVC = AC - AFC AFC = AC - AVC

AVC + AFC is always equal to SAC

MC = TCN – TCN-1

1 102 223 304 305 25

Hint: Law of variable proportions and see Mock paper

Q2) Assuming 2 input L and K in producing a product> identify returns to scale on the basis of the following when producer moves from one input combination to another.

Input Combination T Output1K + 1L 602K + 2L 1404K + 4L 2808K + 8L 50

Hint: Law of Returns to scale Q3) Complete the following table assuming that the law of diminishing returns is operating throughout.

Variation Input MPP1 1023

Q4) Prepare a schedule of different combination of X and Y input assuming(a) Increasing return to scale.(b) Constant return to scale.(c) Decreasing return to scale.

Q5) Explain the difference between MC and AVC. Why should AVC always look like MC? Why is MC the same when computed from VC as from TC?

Q6) why is MC curve in the short run U shape?

Q7) Why is AC curve in the short run U shaped?

Q8) How does the following effect the supply curve of a firm.

(a) Technological purpose., Imposition of a unit tax.(b) Increasing in input price., Increasing in number of firms. Ans. See Mock answers paper

Q9) Is it correct to say that profit of a producer under perfect competition is maximum

at

a level at which P= MC, but MC is decreasing?

Hint:- No, MC should be increasing along with P = MC.

Q10) At a particular level of output, a producer finds that MC > MR. What will a

Producer do to maximize his profit?

Hint:- If MC > MR the producer will reduce his production to increase his

porfit.

Q11) TC is not the sum total of marginal costs.TC MC. Why?

Hint:- MC = TVC MC TVC

Q12) Does MC include fixed cost? Why?

Hint:- No. Because MC is additional cost and additional cost can only be

variable

cost.

Q13) What change in total revenue will result in

(a) Decrease in marginal revenue.

(b) An increase in marginal revenue

Hint:- Relationship TRS/ MR

Q14) What change should take place in total revenue so that

(a) Marginal revenue is positive.

(b) Marginal revenue is falling.

( See Mock Paper)

Q 15) Distinguish between ‘Change in supply’ and ‘Change in quantity supply’ of a

commodity. ( see Mock Paper)

Q 16) Define market supply. State the law of supply and the assumption behind it

( See Mock Paper)

Q 17) Complete the following table:

Variable input TPP APP MPP

0 0 ---

1 --- 20

2 --- 26

3 66 ---

4 --- 19 10

5 --- 4

TC = FC + VC

Q18) At the market price of Rs. 10 a firm supplies 4 units of output. The market price increases to Rs. 30. The price elasticity of the firm’s supply is 1.25. What quantity will the firm supply at the new price?Q19. When the price of doll is Rs 4 per doll, a doll makes supplies 8 dolls per day.

It the price to Rs 5 per doll, he is writhing to supply 10 dolls.

Ans.

The price elasticity of supply is 1

Q20) Given below is the cost schedule of a firm. Its total fixed cost is Rs. 100.

Calculate average variable cost and marginal cost at each given level of output.

Output (units) 1 2 3 4

Total cost (Rs.) 350 450 610 820

Q21Calculate total variable cost and marginal cost at each given level of output

from the following table.

Output (units) 0 1 2 3 4

Total cost (Rs.) 40 60 78 97 124

Q.22. Complete the following table:

Q23. Calculate total cost and average variable cost of a firm at each given level of output from its cost schedule given below:

Output (units) AFC (Rs.) MC (Rs.)1 60 32

Output (units) Price (Rs.) Total revenue (Rs.) Marginal revenue (Rs.)

1 7 -- --2 6 -- --3 4 -- --4 2 -- --

2 30 303 20 284 15 305 12 356 10 43

Explain why MC cuts AC and AVC at their minimum valuesQ24. Explain the fallacies in each of the following:

(a) AC is minimized when MC is at its lowest point.(b) Because fixed costs never change, AFC is constant for each level of output.(c) AC is rising whenever MC is rising.(d) The opportunity cost of drilling for oil is zero because no firm produces

anything there.

Q25. At the market price of Rs. 10 a firm supplies 4 units of output. The market price increases to Rs. 30. The price elasticity of the firm’s supply is 1.25. What quantity will the firm supply at the new price?

Q26. The price of a commodity is Rs. 12 per unit and its quantity supplied is 500 units. When its price rises to Rs 15 per unit, its quantity supplied rises to 650 units. Calculate its price elasticity of supply. Is supply elastic?Q27. Due to a 10 per cent rise in the price of a commodity, its quantity supplied rises from 400 units to 450 units. Calculate its price elasticity of supply. Is its supply elastic?

Unit 4:Forms of Market and Price Determination Q1) Why a firm under perfect competition will not lower the price to increase its sales? Hint:- (a) An individual firm - a small supplier in the market can not ever cater to the entire market demand for the commodity. (b) Uniform price –

Q2) Perfect competition is no competition. How?

Hint:- (a) Uniform price (b) No price war (c) Homogeneous product

Q3) Both under monopoly and under monopolistic competition firms demand curve

slopes downwards. Is there any differences? Reasons. Hint:- (a) No close substitutes (b) Single seller

Q4) Does price never change under perfect competition, given the fact that a firm

under

perfect competition is a price taker? Hint:- Industry will determine the price with the help of Demand and Supply

force

Q5) What is the reason for the long run equilibrium of a firm in monopolistic

competition

to be associated with zero profit?

Q6) What happens when demand and supply curve don’t intersect each other?

Hint:- Economically non-viable.Q7. ‘what is the relationship between control price and equilibrium price ?

Hint :-Control price is less than equilibrium price8. What is meant by abnormal profit A. Abnormal profit are known as positive profit. It is the profit earned over and

above normal profit9. What is the break – even price ?A. Break-even price is the price at which firms make zero abnormal profit. It is

equal to average cost.10. If the firms are earning abnormal profits, how will the number of firms in the

industry charge ?A. When the firm enjoys the abnormal profits, many new firms gets attracted to

the industry and the number firms in the industry charge and also increases the competition.

11. If the firm is making abnormal losses, how will the number of firms in the change.

A. In the situation of abnormal losses, some of existing firms may leave the industry. This process will condition till there is no losses.

12. Why does a competitive firm cannot earn abnormal profit in the long run?A. Due to free entry and exit of firms, break even price is equal to average cost in

long run sinceP = LAC = LMC, a competitive firm cannot earn abnormal profits.

13. What are patent rights ?A. It is an exclusive license or right grouted to a company or an individual to

produce a particular product or use a particular technology.15. What is cartel ?A. Cartel is a group of firms which jointly sets output and price so as to exercise

monopoly power.16. What is the relationship between price and marginal cost at the monopoly

equilibrium?A. Price is greater than marginal cost i.e > MC, When MC = MR17. What is profit maximizing rule for a monopoly firm.A. The profit maximizing condition is MC = MR and on C is rising (P>MR; P>

MC)18. Why does a monopoly firm earn abnormal profit in the Long run ?A. Monopoly firm earns abnormal profits in the long run became of blacked free

entry of new firms in the market.19. What are anti-trust legislations?A. Anti-Trust legislations refers to these legislations which del with the issue of

market power of firms, in relation to their productive efficiency.20. What is persuasive advertising ?A. There is a need to maintain a perception in the mind of the potential

consumers that their respective brands are different / better as compared to

other bands. Expenses incurred for this is known as advertising costs or persuasive advertisement.

IDENTIFY THE FORM OF MARKET FROM THE DAT GIVEN BELOW:

Output sold (units) Price of A Price of B203040

222

432

6:National Income and Related Aggregates

Q1) What are leakages injections?Q2) Valued added – (see Numerical )

Double counting and how to avoid it.

Q3) Expenditure and Income Method (see Numerical )

Q4) NDI and Pvt. I - (see Numerical )

Q5) What is the difference between planned and unplanned inventory accumulation?

Write down the relation between charge in inventions and value added of a firm

Q6) Write down the 3 identities of calculating the GDP of a country by 3 methods.

Explain why each of these should give us the same value of GDP.

Q7) Why is net exports (X-H) a part of domestic income, and not a part of NFIA

Hint:- exports are goods produced within the domestic territory.

Q8) State the 2 major components each of final consumption expenditure and gross

domestic capitals formation. Hint:- (a) Pvt final Consumption Exp. (b) Government Final Consumption exp. - Gross domestic fixed capital formats.

-Change in stock

Q9) NI included

10. What is factor market?

A. It consists of factors of production namely, land, labour, capital, raw material and entrepreneur.

11. Define product market?

A. It consists of final goods and services.

12. What do you understand by real flow?

A. Real flow means the flow of factor services from households to firms and of goods and services from firms to households.

13. What is the alternative name of micro economics?

A. ‘Price theory’

14. Why is change in stock is considered a part of final expenditure?

A: Unsold stocks left with producers are assumed as purchased by the producers themselves. That is why it is treated as investment expenditure by the producers

From the following data calculate ‘gross value added at factor cost’: (Rs. in lakhs)

(i ) Net indirect taxes 20(ii) Purchase of intermediate products 120(iii) Purchase of machines 300(iv) Sales 250(v) Consumption of fixed capital 20(vi) Change in stock 30

From the following data calculate net national product at factor cost by (a) income method, and (b) expenditure method.

(Rs. in crores)

(i ) Current transfers from rest of the world 100(ii) Government final consumption expenditure 1,000(iii) Wages and salaries 3,800(iv) Dividend 500(v) Rent 200(vi) Interest150(vii) Net domestic capital formation 500(viii) Profits 800(ix) Employers’ contribution to social security schemes 200(x) Net exports (-) 50(xi) Net factor income from abroad (-) 30(xii) Consumption of fixed capital 40(xiii) Private final consumption expenditure 4,000(xiv) Net indirect tax 300

Calculate (a) private income, and (b) personal disposable income from the following data:

(Rs. in crores)

(i ) Income from property an entrepreneurship accruing to government administrative department 500

(ii) Savings of the non-departmental public enterprises 100(iii) Corporation tax 80(iv) Income from domestic product accruing to private sector 4,500(v) Current transfers from government administrative departments 200

(vi) Net factor income from abroad (-) 50(vii) Direct personal taxes 150(viii) Indirect taxes 220(ix) Current transfers from rest of the world 80(x) Savings of private corporate sector 500

15. Will the following factor income be a part of domestic factor income of India? Give reasons for your answer.

(i) Profit earned by foreign banks from their branches in India.(ii) Salary received by Indian residents, working in American embassy in

India.(iii) Profits earned by an Indian company from its branch in Singapore.(iv) Compensation of employees given to residents of China working in Indian

embassy in China.16. What is double counting? How can it be avoided? 17. How the sum of net factor income is equal to the sum of factor income?

18. What is effective demand? How will you derive the autonomous expenditure multiplier when price of final goods and the rate of interest are given? Calculate Gross National Disposal Income from the following data: Rs.

(Crores)

(i) National income. 2,000

(ii) Net current transfers from rest of the world. 200

(iii) Consumption of fixed capital. 100

(iv) Net factor income from abroad. (-) 50

(v) Net indirect taxes. 250

(3

marks)

Ans. G.N.D.I. = GNPmp + NCT R/W

= (N.I. + CFC + NIT) + NCT R/W

= (2000 + 100 + 250) + 200= 2350 + 200 = Rs. 2550.

Calculate Gross National Disposal Income from the following data:Rs.

(Crores

)

(i) Net national product of factor cost. 3,000

(ii) Net factor income from abroad. (-) 50

(iii) Consumption of fixed capital. 150

(iv) Net indirect taxes. 250

(v) Net current transfers from rest of the world. 300

(3

marks)

Ans. G.N.D.I. =(I + iii + iv) + (v)

= (GNPmp) + (NCT R/W)

= (3000 + 150 + 250) + (300)

= 3400 + 300 = Rs. 3700 crores.

Calculate Net National Disposal Income from the following data: Rs. crores)

(i) Gross national product at factor cost. 800

(ii) Net current transfers from rest of the world. 50

(iii) Net indirect taxes. 70

(iv) Consumption of fixed capital. 60

(v) Net factor income from abroad. (-)10

(3 marks)

Ans. G.N.D.I. = GNPmp + NCT R/W

= (GNPFC + NIT) + NCT R/W

= ( i + iii) + ii

= (800 + 70) + 50

= Rs. 920 crores.

Calculate Net National Disposal Income from the following data:

Rs. (Crores)(i) Gross domestic product at the market price. 1,000

(ii) Net factor income from abroad. (-)20

(iii) Net indirect taxes. 120

(iv) Consumption of fixed capital. 100

(v) Net current transfers from rest of the world. 50

(3 marks)

Ans. NNDI = NNPMP + NCT R/W

= (GNPMP - CFC + NFIA) + NCT R/W

= i – iv + ii + v= 1000 + 100 + (-20) + 50

= Rs. 930 crores.

Calculate Net National Disposal Income from the following data:

Rs. crores

(i) Gross domestic product at the market price. 1,500

(ii) Net factor income from abroad. (-)20

(iii) Consumption of fixed capital. 100

(iv) Net current transfers from rest of the world. (-)30

(v) Net indirect taxes. 120

(3 marks)

Ans. NNDI = NNPmp + NCT R/W

= (GNPmp - CFC + NFIA) + NCT R/W

= i – iii + ii + iv: = 1500 + 100 + (-20) + (-30), = Rs. 1350

crores.

Calculate (a) private income, and (b) personal disposable income from the following

data: Rs.

(Crores)

(i) Income from property and entrepreneurship accruing to the

government administrative departments.

500

(ii) Savings of non-departmental enterprises. 100

(iii) Corporate tax. 80

(iv) Income from domestic product accruing to private sector. 4,500

(v) Current transfer form government administrative departments. 200

(vi) Net factor income from abroad. (-)50

(vii) Direct personal taxes. 150

(viii) Indirect tax. 220

(ix) Current transfers from rest of the world. 80

(x) Savings of private corporate sector. 500

Ans: Pvt. Income = iv + v + ix + vi

= 4500 + 200 + 80 +(-50)

= 4500 + 200 +80 – 50 = Rs.4370 Crores,

PDI = Pvt. Income – iii – x – vii: = 4730 - 80 - 500 - 150 = Rs.4000 Crores.

Calculate (a) private income, and (b) personal disposable income from the following data: Rs.

(Crores)

(i) Savings of private corporate sector. 500

(ii) Current transfers from rest of the world. 60

(iii) Corporate tax. 80

(iv) Current transfer form government administrative departments. 170

(v) Direct personal taxes. 150

(vi) Income from domestic product accruing to private sector. 4,500

(vii) Savings of non-departmental enterprises. 250

(viii) Net factor income from abroad. (-)30

(ix) Net exports (-)50

Ans: Pvt. Income = vi + viii + iv + ii

= 4500 + (-30) + 170 + 60

= 4500 – 30 + 170 + 60 = Rs.4700 Crores

Explain briefly the distinction between:(a) Gross domestic product at factor cost and Net national product at market

price.(b) National income and Net Disposable Income.

Calculate (a) private income, and (b) personal disposable income from the following

data: Rs.

(Crores)

(i) Net Indirect tax. 90(ii) Compensation of employees 400(iii) Personal tax. 100(iv) Operating surplus 200(v) Corporate profit tax. 80(vi) Mixed income of the self-employed. 500(vii) National debt interest. 70(viii) Savings of non-departmental enterprises. 40(ix) Current transfers from rest of the world. 60(x) Income from property and entrepreneurship accruing to the

government administrative departments.30

(xi) Net current transfers to the rest of the world. 20(xii) Net factor income from abroad. (-)50S .

Ans: (a)NNDI = ii + iv + vi + xii + i - xi

= 400 + 200 + 500 + (-50) + 90 – 20

= Rs.1120

(b) Private income = (ii + iv + vi) – viii – x + xii + vii + ix – xi

= (400 + 200 + 500) – 40 – 30 + (-50) + 70 + 60 – 20

= 100 – 40 – 30 – 50 + 70 + 60 – 20

= Rs. 1090 crores.

From the following data calculate national income by (a) income method and (b)

expenditure method. (6 marks)

Rs.

(Crores)

(i) Private final consumption expenditure 2,000

(ii) Net capital formation 400

(iii) Change in stock 50

(iv) Compensation of employees 1,900

(v) Rent 200

(vi) Interest 150

(vii) Operating surplus 720

(viii) Net indirect tax 400

(ix) Employees’ contribution to social security schemes 100

(x) Net exports 20

(xi) Net factor income from abroad (-)20

(xii) Government final consumption expenditure 600

(xiii) Consumption of fixed capital 100

Ans: N.I. (Income method) = iv + vii + xi

= 1900 + 720 + (-20) = 1900 + 720 – 20

= Rs. 2600 crores.

N.I. (Exp. Method) = i + xii + ii + x + viii + xi

= 2000 + 600 + 400 + 20 - 400 + (-20)

= 2000 + 600 + 400 + 20 – 400 - 20

= Rs. 2600 crores.

Will the following factor incomes be included in domestic factor income of

India? Give reasons for your answer. ( 6 marks)

(i) Compensation of employees to the residents of Japan working in Indian embassy

in Japan.

(ii) Profits earned by a branch of foreign bank in India.

(iii) Rent received by an Indian resident from Russian embassy in India.

(iv)Prod Profits earned by a branch of State Bank of Indian in England.

Ans:

(i) It is a part of domestic factor income of India because the Indian

embassy in Japan is a part of domestic territory of India.

(ii) It is a part of domestic factor income of India because the foreign

bank is located in the domestic territory of India.

(iii) It is not a part of domestic income of India because Russian

embassy in India is not a part of domestic territory of India.

2. From the following data, calculate National Product at Market Price by (i) income

method and (ii) expenditure method: (6 marks) Rs. (Crores)

(i) Mixed income of self- employed 400(ii) Compensation of employees 500(iii) Private final consumption expenditure 900(iv) Net factor income from abroad (-) 20(v) Net indirect tax 100(vi) Consumption of fixed capital 120(vii) Net domestic capital formation 280(viii) Net exports (-)30(ix) Profits 350(x) Rent 100(xi) Interest 150(xii) Government final consumption expenditure 450

Ans: (i) GNPMP = COE + R + I + P + Mixed I + NFIA + CFC + NIT +

(Income method) = ii + x + xi + ix + i + iv + vi + v

= 500 + 100 + 150 + 350 + 400 + (-20) + 120 + 100

= Rs. 1700 crores.

GNPMP = PFCE + GFCE + GDCF + Net X + NFIA

(Exp. Method) = iii + xii + (vii + vi) + viii + iv

= 900 + 450 + (280 + 120) + (-30) + (-20) = Rs. 1700 crores.

3. Will the following be included in domestic factor income of India? Give

reasons for your answer. (6 marks)

(i) Profit earned by a foreign bank from its branches in India.

(ii) Scholarships given by Government of India.

(iii) Profits earned by a resident of India from his company in Singapore.

(iv)ssssS Salaries received by Indians working in American Embassy in India.

Ans:

(i) Profit earned by a foreign bank is included in domestic product of India because

the bank’s branches are located in the Indian domestic territory.

(ii) Scholarships is a transfer payment because no service is provided in return. So, it

is not included in domestic income.

(iii) Profits earned by an Indian company in Singapore is not included in domestic

product of India because company is located outside the economic (domestic)

territory of India.

(iv)ssssS Salaries received by Indians working in American Embassy in India is not

included because the embassy is treated as a part of American domestic territory

and not of India.

6: DETERMINATION OF INCOME AND EMPLOYMENT Q1) What is the difference between ex- ante investment and ex-post investment?

Q2) What do you understand by parametric shift of a line? How does a line shift when

its slope decreases

(1) its intercept increases

Q3) Explain the paradox of thrift?

Q4) Bring out the relation between APC and MPC. The value of which of them can

be more than one and when?

Q5) Explain (a) inflationary gap (b) deflationary gap with the help of a diagram.

ANS: See Mock / sample papers marking scheme

Q6) Differentiate between full employment equilibrium and under employment

equilibrium with the help of diagram.

ANS: See Mock / sample papers marking scheme Q7) Define marginal efficiency ofcapital. How is this concept in business decisions?

Q8) Numericals from K, MPC and APC etc.

Q9) In India, people spend a high percentage of their income so that APC and MPC

are high. Yet the value of multiplier is low. Why?

Hint:- India lack in production capacity. Whenever demand increases, there is increasing pressure of demand on the existing output rather than the increase in output or income.Q10) What is multiplier? What determine its value?

Q11) Can output increases beyond full utilization of resources.

Q12) Will price level rise in a situation of increase in Agg demand

Hint:: No

Q13) Does over employment equilibrium imply a higher level of output compared to

full employment equilibrium?

Hint: No

Q14) What is the difference between monetary policy and fiscal policy.

Q15) State the components of fiscal policy

Hint:- SEE Mock paper Q16. Define frictional un-employment?A: Frictional unemployment is a temporary unemployment of people who are shifting jobs since it takes time for a person to get another job. During this period of leaving one job and getting/accepting another job, it is called frictional unemployment

Q17. What is induced investment?

A: Induced investment is that kind of investment, which is profit, motivated. When national income increases induced investment also increases.

Q18. Define autonomous investment / public investment.

A: Autonomous investment is that kind of investment, which is not profit, motivated. It is not affected by the change income, rate of interest, and rate of profit.

Q19. Define linear consumption function.

A: If the consumption function is given on the basis of constant marginal propensity to consume, it is called linear consumption.

C = +by

C = Consumption; = Autonomous consumption/minimum level of consumption; b = Marginal propensity to consume; y = Level of income.

Q20. Explain the relationship between multiplier and MPC.

A. Relationship between multiplier and MPC:- The value of multiplier varies directly with MPC. Higher the MPC, the larger will be the value of multiplier and lower the MPC, the smaller will be the value of multiplier.

Q21.Distinguish between average propensity to consume and marginal propensity to

consume with the help of numerical examples.

ANS: See Mock / sample papers marking scheme Q22.Define aggregate demand. State its components.

ANS: See Mock / sample papers marking scheme Complete the

following table.

Income (Rs.)

Consumption

Expenditure to

consume

Marginal

Propensity to save

Marginal

Propensity

1000 900 - -

1200 1060 - -

1400 1210 - -

1600 1350 - -

Q23. Isn an economy, investment expenditure is increased by Rs. 400 crores and MPC is 0.8 calculate total increase in income and savings

Hints. : Increase income Rs. 2000 Crores, Increase saving Rs. 400 crores .

Q24. Find out MPC and MPS if an additional investment of Rs. 100 crores generates and additional income of Rs. 500 crores .

Hints. : MPC = 0.8 and MPS=0.2

Money and Banking Q1) What is high powered Money

(a) cash with people, B) cash reserve with

Q2) What is money multiplier? How do you determine its value? What ratios paly an

important role in the determination of the value of money multiplier?

ANS: See Mock / sample papers marking scheme

Q3) What are the instruments of monetary policy of RBI? How does RBI stabilize

money

supply giant exogenous shocks?

Q4) How does central bank perform the function of controller of credit?

ANS: See Mock / sample papers marking scheme

Q5) What is the difference between a commercial bank and central bank.

Q6) What is liquidity trap?

Q7) Why is speculative demand for money inversely related to the rate of interest.

Q8. What are the main functions of money? How does money over come the shortcomings of a barter system? ANS: See Mock / sample papers marking scheme Q10. What are the alternative definitions of money supply in India? ANS: See Mock / sample papers marking scheme

Government Budget and the Economy

Q1) Why are borrowing treated as capital receipts.

Q2) Why is the payment of interest treated as revenue expenditure

Q3) What is the basis of classifying govt. expenditure into

(a) Revenue expenditure and capital expenditure

(b) Plan expenditure and non-plan expenditure

Q4) What does fiscal deficit in a govt. budget mean? What are its implications?

Q5) A government budget shows a primary deficit of Rs. 4,400 crores. The revenue

expenditure on interest payment is Rs 400 crores. How much is the fiscal deficit?

Q6. . Define fiscal deficit.

Q7. . What is meant by revenue deficit?

See Mock paper for answer

Q8. . In a government budget revenue deficit is Rs 50000 crores and borrowings are

Rs 75000 crores. How much is the fiscal deficit?

See Mock paper for answer

Q9. In a government budget revenue deficit is Rs 50000 crores and borrowing are Rs

75000 crores. How much is the fiscal deficit?

See Mock paper for answer

Q10. Are fiscal deficits necessarily inflationary? Explain .

Q11. . Explain why the tax multiplier is smaller in absolute value than the

government expenditure multiplier .Q. 12 OBJECTIVES OF BUDGET:-

a) Re-distribution of income and wealth. b) Re-allocation of resources c) Economic stability

Balance of payments

Q1) If inflation is higher in country a than in country B and the exchange rate between

the 2 countries is fixed, what is likely to happen to the trade balance between the

countries.

Q2) What is meant by visible and invisible items in the balance of payments account?

Give 2 examples of invisible items

Q3) Balance of Payment always balance : Does it mean a situation of zero net

financial

obligation for a country?

Hint:- It should not be interpreted as zero net financial obligation for a country.

A

-ve balance on the current account is equated with the balance in the

capital account. But +ve balance in capital account has to be achieved through loans

from ROW.

Q4) How is deficit or surplus on current account BOP restored?

Hint:- Through surplus on capital account, and surplus on current account is

restored

through deficit on capital account.

Q4. The Balance of trade shows a deficit of Rs.300 Crore. The Value of exports are Rs.500 Crore. What is the value of imports? Hint: 800

COMMON ERRORS WHICH ARE GENERALLY SEEN IN ECONOMICS ANSWER SCRIPTS

1. Owing to language problem, the students do not understand the questions correctly.

2. Due to the same problem, they are unable to convey the answers suitably.

3. Poor application of Mathematical problems not practicing regularly

4. Inadequate skills in presenting the diagrams due to lack of practice. For eg., drawing of demand curve for supply curve and vice versa; drawing of cost curves instead revenue curves and vice-versa.

5. Over all presentation of answers is not as expected confused answers.

6. Formulae in National Income Accounting and Micro Economics are not leant thoroughly.

7. Omission of some answers is commonly seen among the students. One should attempt all the questions.

8. Inadequate practice to present the answers to the point.

9. Writing question number wrongly.

PRECAUTIONS TO ENSURE MAXIMUM SCORING IN

ECONOMICS

(FOR THE TEACHERS & THE STUDENTS)

1. Motivation and encouragement of the students are the best tonic for higher or better scoring.

2. Conceptual formation should be very clear to the students.

3. While writing the answers, students must be trained to write only the value points.

4. Conceptual errors should be avoided.

5. Schedules should be learnt thoroughly and diagrams should be practiced regularly.

6. More number of numerical are to be solved.

7. Frequently asked questions in the Board examinations, should be revised thoroughly.

8. Minimum Level of Learning should be ensured for slow learners through intensive and regular remedial coaching, from the inception of the academic year.

9. The teacher has to pay more attention in rectifying the common errors which are being normally made by the students, while writing. Hence, the teacher can discuss these points, in the class room with the help of corrected answer scripts of the students after every test.

10. Xerox copy of the best students’ answer papers can be distributed to other students after discussion

11. Parental care should be obtained periodically by the teacher.

12. Avoid splitting of answers and writing in different places.

QUESTION PAPER CODE 58/1/1 2007

ECONOMICSTime allowed : 3 hours Maximum marks: 100

Note:(i) All questions in both the sections are compulsory.(ii) Marks for questions are indicated against each.(iii) Question Nos. 1 and 13 are very short-answer questions carrying 1 mark for eachpart. They are required to be answered in one sentence each.(iv) Question Nos. 2-5 and 14-17 are short-answer questions carrying 3 marks each.Answer to them should not normally exceed 60 words each.(v) Question Nos. 6-9 and 18-21 are also short-answer questions carrying 4 markseach. Answer to them should not normally exceed 70 words each.(vi) Question Nos. 10-12 and 22-24 are long-answer questions carrying 6 markseach. Answer to them should not normally exceed 100 words each.(vii) Answers should be brief and to the point and the above word limits be adheredto as far as possible.(viii) All parts of a question should be answered at one place.

Section A1. Answer the following questions :(i) Why does an economic problem arise ?(ii) Define opportunity cost.(iii) What does a rightward shift of production possibility curve indicate ?(iv) Define microeconomics. 1×4=4

2. Explain the effect of increase in income of the consumer on the demand for a good. 3

3. State three causes of increase in supply. 3

4. Explain the relation between marginal cost and average cost. 3

5. Explain producer’s equilibrium with the help of a diagram. 3

6. A consumer buys 40 units of a good at a price of Rs. 3 per unit. When pricerises to Rs. 4 per unit he buys 30 units. Calculate price elasticity of demand bythe total expenditure method. 4 OR

A consumer buys 80 units of a good at a price of Rs. 5 per unit. Suppose priceelasticity of demand is (-)2. At what price will he buy 64 units ?

7. Give meaning of: 4(i) production function (ii) Supply (iii) revenue, and (iv) cost8. Calculate ‘total variable cost’ and ‘total cost’ from the following cost schedule

of a firm whose fixed costs are Rs. 10. 4MOutput (units) : Marginal cost (Rs.): 1 62 53 44, 69. At a given price there is excess demand for a good. Explain how the equilibrium

price will be reached. Use diagram. 4

10. Distinguish between :

(a) Individual demand and market demand.(b) ‘Change in demand’ and ‘change in quantity demanded’ 611. State the phases of the law of variable proportions in terms of total physical

product. Use diagram. 6

12. Explain the following features of perfect competition : 6

(i) Large number of buyers and sellers(ii) Homogeneous products ORExplain the following :

(i) ‘Free entry and exit’ feature of perfect competition,(ii) ‘Differentiated products’ feature of monopolistic competition.

Section :B13. Answer the following questions : 1×4(i) Define macroeconomics.(ii) Give two examples of macroeconomic studies,(iii) What does balance of payments account of a country record ?(iv) Name the items included in balance of trade account.

14. Calculate ‘private income’ from the following data : 3M (Rs. crores)(i) National debt interest 30(ii) Gross national product at market price 400(iii) Current transfers from government 20(iv) Net indirect taxes 40(v) Net current transfers from the rest of the world (-) 10(vi) Net domestic product at factor cost accruing to government 50(vii) Consumption of fixed capital 70

15. A Rs. 200 crore increase in investment leads to a rise in national income byRs. 1000 crores. Find out marginal propensity to consume. 3M

16. Give meanings of: 3M(i) involuntary unemployment(ii) full employment, and

(iii) under employment equilibrium17. Give three sources each of demand and supply of foreign exchange. 3M

18. Give meaning of money. Explain the ‘store of value’ function of money. 4 M ORWhat is ‘barter’? Explain ‘standard of deferred payment’ function of money.

19. Explain the’acceptance of deposits’function of commercial banks. 4M

20. Distinguish between ‘revenue receipt’ and ‘capital receipt’ and give two examples

of each. 4M

21. What is ‘fiscal deficit’ ? What are its implications ? 4M

22. Calculate national income and gross national disposable income from the

following data:

(Rs. crores)(i) Current transfers by government 15(ii) Private final consumption expenditure . 400(iii) Net current transfers from the rest of the world 20(iv) Government final consumption expenditure 100(v) Net factor income from abroad (-) 10(vi) Net domestic capital formation 80(vii) Consumption of fixed capital 50(viii) Net exports 40(ix) Net indirect taxes 60 4+2

23. Explain the production method of estimating national income. 6 ORExplain the income method of estimating national income.

24. Explain the problem of ‘excess demand’ in an economy with the help of adiagram. Explain the role of bank rate in correcting it. 6.

EXPECTED ANSWERS M: Section – A1. (i) Economic problem arises because of unlimited wants and scarcity of resourceshaving alternative uses. 1(ii) Opportunity cost is the value of the next best alternative foregone. 1(iii) It indicates growth of resources. 1 OR Advancement of technology.(iv) A study of the single economic unit of the economic system / economy. 1

2. Explanation of the effect in case of normal good. 1½

Explanation of the effect in case of an inferior good. 1½3. Cause of increase in supply :(i) Technological improvements, (ii) Fall in prices of inputs(iii) Fall in taxes on production., (iv) Fall in prices of other goods(v) Any other relevant cause.

4. When MC < AC : AC falls, When MC = AC : AC is constantWhen MC > AC : AC rises 3m5. Note : If the diagram is drawn with straight line TR curve, it may be treated ascorrect. A producer is in equilibrium at that level of output at which the difference betweenTotal Revenue and Total Cost is maximum.In the diagram OQ is the equilibrium output at which total profit equals RC = RQ – CQ. 6. Price (Rs.) demand (Units) Total Expenditure (Rs.) 3 40 120 4 30 120

Since with change in price total expenditure remains the same, EP = 1 ORPrice at which 64 units are bought 17. (i) Production function shows relation between physical inputs and the physicaloutput . 1(ii) Supply means the quantity of a good a producer is willing to supply at a priceduring a period of time. 1(iii) Revenue means receipts from the sale of output. 1(iv) Cost means expenditure incurred on producing a good including the estimatedvalue of the inputs supplied by the owner. 1

8. Output (Units) MC (Rs.) TVC (Rs.) TFC (Rs.) TC (Rs.) 1 6 6 10 16 2 5 11 10 21 3 4 15 10 25 4 6 21 10 31 ½×8

9. In the diagram excess demand at price OP1 is AB.Since consumers will not be able to buy what all they want, they will offer a higherprice. When price rises supply rises and demand falls.These changes continue till price reaches a level at which quantity demanded equalsquantity supplied. This price is OP. 3

10. (a) Quantity demanded of a commodity by a buyer at a given price during agiven period is called individual demand. Quantity demanded of a commodityby all the buyers is called market demand. 3(b) Change in demand due to change in own price of the given good is calledchange in quantity demanded. Change in demand of a good due to any factorother than the own price of the good is called ‘change in demand’ 3

11. Statement of three phases of law of variable proportion in terms of total physicalproduct using the diagram. 312. (i) Explanation 3, (ii) Explanation 3

SECTION – B

13. (i) Macro economics is a study of the aggregates of the economic system. 1(ii) Study of aggregate demand, aggregate supply, unemployment, inflation , etc. (any two) (iii) BOP records transactions between residents of the given country and theresidents of the foreign countries. 1(iv) (a) Exports of goods (b) Imports of goods. 1

14. Pvt. Income = ii – vii – iv – vi + iii + v + i 1= 400 – 70 – 40 – 50 + 20 + (-10) + 30 1½, = Rs 280 crores. ½15. 1.16. (i) Involuntary unemployment is a situation where all those who are able andwilling to work at the going wage rate do not get work. 1(ii) Full employment means a situation when all resources in an economy arefully utilized. 1(iii) Under employment equilibrium means aggregate demand equals aggregatesupply when resources are not fully employed. 1

17. Sources for demand for foreign exchange (any three) ½×3Sources of supply of foreign exchange (any three) ½×318. Meaning of money 1Explanation of the function 3, ORMeaning of barter 1Explanation of the function 3

19. Explanation of the function.(To be marked as a whole) 4

20. The receipts which neither create any liability nor lead to any reduction in assetsare called revenue receipts while the receipts which lead to either increase inliability or to reduction in assets are called capital receipts 2Examples (two each) ½×4

21. Meaning of fiscal deficit 2Implications of fiscal deficit 2

22. N. I.= ii + iv + vi + viii – ix + v 1= 400 + 100 + 80 + 40 – 60 + (-10) 2½= Rs. 550 crores ½GNDI = (N. I. + ix + vii) + iii 1= (550 + 60 + 50) + 20 ½

= Rs. 680 crores. ½

23. Steps of estimating national income in production method(i) Classify the production units into industrial sectors. 1(ii) Estimate value added by each industrial sector : 2GVAmp = value of output – intermediale cost.(iii) Take the sum of value added by all the industrial sectors to get GDPmp. 1(iv) Deduct consumption of fixed capital and net indirect tax to arrive at NDPfc. 1(v) Add. Net Factor Income from abroad to NDPfc to get NNPfc / national income. ORSteps in income method.(i) Classify the production units into industrial sectors. 1(ii) Estimate factor payments – COE, rent, interest and profit – by each industrialsector to arrive at NVAfc. 2(iii) Take the sum of NVAfc to arrive at NDPfc. 2(iv) Add. NFIA to NDPfc to get NNPfc / national income. 1

24. Excess demand : AD greater than AS at full employment 1Excess demand = AB. at the full employment level OF.

CBSE, MARCH 2008, ALL INDIA, ( THREE SETS )

Section –A

1. Define 'marginal rate of transformation'.

2. What is demand Schedule?

3. Define production function.

4. What is market supply?

5. Define equilibrium price.

6. Explain the central problem of choice of technique.

7. Price elasticity of demand of a good is 9-01. At a given price the consumer buys 60 units of the good. How many units will the consumer buy if the price falls by 10 percent?

8. Given the market price of a good, how does a consumer decide as to how many units of that good to buy? Explain.

9. What is the likely effect on the supply of a good if the prices of the inputs used in the production of that good fall? Explain.

10. Explain what happens to the profit in the long run if the firms are free to enter the industry. OR Explain what happens to looses in the long run if the firms are free to leave the industry.

11. Explain producer's equilibrium using a schedule. Use total cost and total revenue approach. OR Distinguish between (I) Fix cost and variable cost giving examples and (II) Revenge cost and marginal cost giving an example.

12. Draw supply curves with price elasticity of supply throughout equal to (I) zero , (II) one (II) infinity, (IV)less than one13.

Price (Rs) Output(units) Total revenue(Rs) Marginal Cost(Rs) - 1 6 - 4 - - 2 - 3 6 - 1 - - -2

14. Explain with the help of numerical example, the effect on total output of a good when all the inputs used in production of that good are increased simultaneously and in the same proportion.

15. Given market equilibrium of a good what are the effects of simultaneous increase in both demand and supply of that good on the equilibrium price and quantity?

OR Explain the implication of the following

1) The feature differentiated product under monopolistic competition.2) The feature large numbers of buyers and sellers under perfect competition.

16. Explain the effect of the following on demand for a good1) Rise in income, s2) Rise in price of related good

SECTION B17. Define aggregate supply. 118. Give meaning of deficient demand. 119. What is commercial bank? 120. Define Government Budget. 121. What is fixed exchange rate system? 122. Calculate net value added at factor cost from the following

data. 3a) Depreciation 20b) Intermediate cost 90c) Subsidy 05d)Sales 140e) Export 07f) Change in stock -10g) Import of raw material 03

23 When exchange rate of foreign currency fall its demand rises.Explain how. 3

24 Distinguish between BOT and Balance of current account. 3 25 Explain the medium of exchange function of money 3

ORExplain the evolution of money .

26 Give meaning of Capital expenditure and revenue expenditure inA government budget and an example ofeach. 3

27 In an economy an increase in investment leads to increase in national income which is three times more than the increase in investment.Calculate MPC . 4

28 Explain the lending function of commercial banks. 4OR

Explain Bankers to the government function of Central Bank..29 What is revenue deficit ?What are its implications? 4

30 Calculate national income and private income::- 6

a) Net current transfer to ROW 10b) Private final Consumption expenditure 600

c) National debt interest 15d) Net export -20e) Current transfers from Govt. 5f) Net domestic product at factor cost 25

accruing to Govt.

g) Govt. final consumption expenditure 100h) Net indirect tax 30i) Net domestic Capital formation 70j) NFIA 10

31 Explain consumption function with the help of a scheduleand diagram. 6

ORExplain saving function with the help of a schedule and diagram.

32 Give reasons explain how the following are treated in estimating national income.

a) Wheat grown by a farmer but used entirely for family consumption.2

b) Earning of the share holder from the sale of shares.2

c) Expenditure by Govt. on providing free education.2

Uncommon questions to Set I

6. Price elasticity of demand foa a good is 9-) 2. The consumer buys a certainQuantity of this goode at a price of Rs. 8 per unit. When price falls he buys 50% more quantity. What is the new price.? 3M8. What is the likely effect on the supply of a good if a unit tax imposed on that good? Explain.10.. Explain the central problems of choice of products to be produced. 3M11.

Price (Rs.) Output (Units) TR(Rs.) MR (Rs.)10 1 -- ---- 2 14 ---- 3 -- 1-- 4 12 --

SECTION : B26. Calculate Gross Value Added at MP from the following data. 3M

Sl.No Items Rs. In lakhs1 CFC/ Deprecfition 152 Sales in domestic market 2503 Exports 504 Opening stock 205 Purchase of raw material 1506 Closing stock 307 Import of raw material 25

27. What is fiscal deficit? What are its implications?28.If MPS is 0.2 , how much new investment is required to make the national income rise by Rs. 600 crores? Calculate . 4M

31. Calculate 'Gross National Product at MP' and Personal Income" from The following data. 3,3 M

Sl.No Items Rs. In Crores1 Corporation tax 352 Wages and salaries 2003 National debt interest 254 Operating surplus 4005 Net current transfers from abroad 1526 Net factor income from abroad (-)107 Consumption of fixed capital 208 Social security contributions by employers 309 Net indirect tax 4010 NDP at FC accruing to the private sector 50011 Current transfers from govt.s 5

Uncommon questions to Set I & II Section A

7. What is the likely effect of technological progress on the supply of a good? Explain.9. Explain the central problem of distribution of income 3M10 Price elasticity of demand of a good is (-) 3. If the price rises from Rs. 10 per unit to Rs. 12 per unit, what is the percentage change in demand. 3M12. Complete the following table:

Price (Rs.) Output (Units) TR(Rs.) MR (Rs.)7 -- 7 ---- 2 10 ---- 3 -- (-)11 -- -- (- ) 5

SECTION : B26. Calculate Gross Value Added at FC from the following data. 3M

Sl.No Items Rs. In lakhs7 CFC/ Deprecfition 92 Sales 4004 Excise duty 301 Sales tax 203 Purchase of raw material 2505 Change in stock (-) 406 Import of raw material 12

28. Distinguish between: i) Balanced budget and surplus budgetii) developmental expenditure and non- developmental expenditure.4M29. Given MPS equal to 0.25, what will be the increase in national income if investment increases by rs.125 crores. Calculate. 4M

32. Calculate 'Net National Product at MP' and Private Income" from The following data. 3,3 M

Sl.NoItems Rs. In Crores1 Net factor income from abroad (-)52 Private final consumption expenditure 1003 Personal tax 204 Gross domestic capital formation 1705 Govt final consumption expenditure 206 Corporation tax 157 Gross domestic capital formation 308 Personal Disposable Income 709 Net exports (-) 1010 Saving of pvt corporate sector 511 Net national disposable income 145

1 / B2 / B3

MARCH – 2008 MARKING SCHEME – ECONOMICS

Expected Answers / Value Points

Questions with mark are higher order thinking questions.

Q. No. Expected Answer / Value Points Distribution Set of Marks

B1 B2 B3

1 5 4 Section – AMRT is the ratio of units of one good sacrificed to produce one more unit of the other good.

1

2 1 5 Demand schedule is a table showing prices and the quantities demanded at each price.

1

3 2 1 A production function is an expression of quantitative relation between change in inputs and the resulting change in output.

1

4 3 2 Market supply refers to the sum of outputs of all the producers of a good at a price during a given period of time.

1

5 4 3 Equilibrium price is the price at which market demand equals market supply.

1

6 10 9Meaning of the problem

Explanation of the problem

12

E =

E =

-2 == -25%

-3 =

E =

- 1 =

Percentage change in price =

Percentage change in price = × 100 = 20%

7 - - Percent change in demand Percent change in price

Percent change in demand -10%

Percent change in demand = 10%

New demand = Q + 10% of Q = 60 + 10% of 60 = 66

1

1

½

½

- 6 - Percent change in demand Percent change in price 50%_______ Percent change in price 50 -2 New price = P + % change in P = 8 + (-25% of 8) = 8 - 2 = Rs 6

1

1

½

½

- - 10 % Change in demand % Change in price

2 10

% change in demand 20% % change in demand = -60% i.e. falls by 60%

1

½

1

½

8 7 6 Consumer, compares price with marginal utility (MU). He continues to buy so long as MU is greater than price. As he buys more MU falls and becomes equal to price at a certain quantity. He stops buying when MU=P. This maximizes utility. Buying more will make MU less than price, and reduces utility. (To be marked as whole)

3

9 - - Fall in price of inputs reduces cost. This raises profits which induces the producers to supply more (Explanation)

3

- 8 - Imposition of a unit tax raises cost. This reduces profit which results in producer supplying less (Explanation)

3

- - 7 Technological progress raises productivity and thus reduces cost. This raises profits and induces the producers to supply more (Explanation)

3

10 9 8 When existing firms are earning profit, freedom of entry induces new firms to enter the industry. This raises market supply which in turn leads to fall in market price. Profits fall and continue to fall till each firm is earning zero economic profit / normal profit / Zero profit.

ORWhen existing firms are incurring losses, the firms start leaving the industry. This reduces the number of firms. The market supply is reduced which in turn leads to rise in market price. Losses fall and continue to fall till they are wiped out and each firm left in the industry is earning zero economic profit / normal profit / Zero profit.

3

11 12 13 ScheduleExplanation in terms conditions of equilibrium based on TR/TC approach. OR(i) FC vs VC Distinction Examples ½ × 2

(ii) AC vs MC Distinction Numerical example ½ × 2

22

11

11

12 13 11 Supply curve, elasticity of supply – degrees diagrams

(No explanation required)For blind candidates(i) Distinction in terms of numerical value(ii) Distinction in terms of numerical value

13 - - Price Output TR MR (Rs) (unit) (Rs) (Rs) 6 1 6 6 4 2 8 2 2 3 6 -2 1 4 4 -2

½ × 8

- 11 - Price Output TR MR (Rs) (unit) (Rs) (Rs) 10 1 10 10 7 2 14 4 5 3 15 1 3 4 12 (-) 3

½ × 8

- - 12 Price Output TR MR (Rs) (unit) (Rs) (Rs) 7 1 7 7 5 2 10 3 3 3 9 (-) 1 1 4 4 (-) 5

½ × 8

14 16 15 (i) Normal good case Inferior good case

(ii) Substitute goods Complementary goods

1½ 1½

1½1½

15 14 16 C. R. S. Meaning Numerical Example I. R. S. Meaning Numerical ExampleD. R. S. Meaning Numerical Example

111111

16 15 14 3 possibilities : Price may rise, remain same, may fall (with explanation) (Diagram not required)

OR(i) Meaning Implication : in terms of power to influence price by a firm.

(ii) Meaning Implication : in terms of on individual firm having no influence over the market price.

2 × 3=6

12

1

2

17 21 20Section – B

Aggregate supply refers to the value of final products planned to be produced in an economy during a given year.

1

18 17 21 Deficient demand refers to the aggregate demand falling short of aggregate supply at full employment level.

1

19 18 17 A commercial bank is a financial institution which accepts checkable deposits and lends money to public.

1

20 19 18 Government budget is a statement of expected receipts and expenditures during a given year.

1

21 20 19 A system in which exchange rate is fixed by the government/ monetary authorities and not determined by the market.

1

22 - - NVA fc = iv + vi – ii – i + ii = 140 + (-10) -90-20 + 5 = 25 (Rs. lakhs)

11½½

- 26 - GVA mp = ii + iii + vi – iv - v = 250 + 50 + 30 – 20 - 150 = Rs 160 lakhs.

11½½

- - 25 GAV fc = ii + v – iii – i - iv = 400 + (-40) – 250 – 20 - 30 = Rs 60 lakhs

11½½

23 22 26 When exchange rate falls imports become cheaper. Demand for imports rises and so rises the demand for foreign exchange to purchase more imports.

3

24 23 22 Balance of trade = Exports of goods – Imports of goodsBalance on current account is the difference between receipts and payments of foreign exchange on account of goods, services, incomes and transfers.

1

2

25 24 23 Medium of exchange function including how it solves the problem of double coincidence of wants.

OR

Evaluation of money in terms of commodity money, metallic money paper money, bank money.

3

3

Multiplier =

4 =

D Y = DI

600 = D I

D Y = DI

D Y = 125

26 25 24 Capital expenditure is the expenditure by government that either creates an asset or reduces a liability.Example : construction, repayment of loan, etc. any one Revenue expenditure is the expenditure by government that neither creates an asset nor reduces a liability Example: interest payment, subsidy, etc. any one

1

½

1½

27 - - Since increase in Y is 3 times more than increase in I, total increase in Y is 4 times. Therefore, the value of multiplier is 4.

1__ 1 - MPC 1__ 1 - MPC

4 – 4 MPC = 1 4 MPC = 3 MPC = 0.75

1

1

1

1

- 28 - 1__ MPS 1_ 0.2D I = 600 × 0.2 = 1200

2

1

1

- - 29 1__ MPS 1_ 0.25 = 125 × 4 = Rs 500 crores

2

1

1

28 29 27 Explanation in terms of direct loans, cash credit, overdrafts, discounting bills of exchange.(Explanation of any two forms is sufficient to attract full credit).

ORExplanation in terms of undertaking banking transactions of government, managing public debt, advising on financial matters.

2 × 2=4

4

29 - - Revenue deficit is the excess of government’s total revenue expenditure over the total revenue receipts.

The deficit is to be covered through borrowings, disinvestment, etc. The borrowing in turn leads to the payment of interest and repayment of loans in future which may mean more deficit in future.

1

3

- 27 - Fiscal deficit is the excess of government’s total expenditure (revenue and capital both) over the receipts excluding borrowing / borrowing requirements of the government.

Borrowing requires interest payments and repayment of loans in future leading to more deficit.

1

3

- - 28 (i) When revenue receipts equal revenue expenditure, it is called ‘balanced budget’. When revenue receipts exceed revenue expenditure, it called surplus budget.(Note: No mark be deducted if the word revenue is not mentioned)

(ii) Expenditure on developmental activities by government on different sectors of the economy is called developmental expenditure while expenditure on the essential services of routine nature is called non-developmental expenditure.

2

2

30 - - N.I = ii + vii + ix + iv – viii + × = 600 + 100 + 70 + (-20) – 30 +10 = Rs 730 crores

Pvt. Income = N.I – vi – i + iii + v = 730 – 25 – 10 + 15 + 5 = Rs 715 crores

1 1½ ½ 1 1½ ½

- 31 - G. N. Pmp = (ii + viii) + iv + vii + ix + vi = 200 + 30 + 400 + 20 + 40 (-10) = Rs. 680 crores

Personal Income = x + vi + iii + v + xi – i = 500 + (-10) + 25 +15 + 5 – 35 = Rs. 500 crores

1 1½ ½ 1 1½ ½

- - 32 N N Pmp = ii + v + vii + ix – (iv – xi) + i = 10 +20 + 30 + (-10) – (170-145) + (-5) = 100 + 20 +30 – 10 – 25 – 5 = Rs. 110 crores Pvt. Income = viii + iii + vi + x = 70 + 20 + 15 + 5 = Rs. 110 crores

1 1½ ½ 1 1½ ½

31 32 30 ScheduleExplanation based on schedule

Diagram (need not necessarily be according to schedule)

OR

2 2

2

ScheduleExplanation based on schedule

Diagram (need not necessarily be according to schedule)

For blind candidateScheduleExplanation based on scheduleMPC in schedule OR

ScheduleExplanation based on scheduleMPS in schedule

2 2

2

2 2 2

2 2 2

32 30 31 (i) Self consumed output is a part of total output and therefore, accounted for through the production method.

(ii) Earning from the sale and purchase of financial assets is not accounted in national income estimation because it is not production.

(iii) It is a final consumption expenditure of the government and therefore, accounted in national income through the expenditure method. (No marks if reasons not given)

2

2

2

SAMPLE PAPER IIECONOMICS

Class - XIIMaximum Marks 100 Time : 3 hrs.Time : 3 Hrs. Max. Marks - 100Note :i. All questions in both the sections are compulsory.ii. Marks for questions are indicated against each.iii. Question Nos. 1-5 and 17-21 are very short-answer questions carrying 1 mark each. They are required to be answered in one sentence each.iv. Question Nos. 6-10 and 22-26 are short-answer questions carrying 3 marks each. Answer to them should not normally exceed 60 words each.v. Question Nos. 11-13 and 27-29 are also short-answer questions carrying 4 marks each. Answer to them should not normally exceed 70 words each.vi. Question Nos. 14-16 and 30-32 are long-answer questions carrying 6 marks each. Answer to them should not normally exceed 100 words each.vii. Answers should be brief and to the point and the above word limit be adhered to as for as possible.

Section - AIntroductory Microeconomics

1. Define .opportunity cost.. (1)2. Define .change in demand.. (1)3. A rise in the price of a good results in an increase in expenditure on it. Is itsdemand elastic or inelastic? (1)4. What is meant by the term .price taker. in the context of a firm? (1)5. What is the price elasticity of supply of a commodity whose straight line supplycurve passes through the origin forming an angle of 75º? (1)6. Given below is the utility schedule of a consumer for commodity X.The price of the commodity is Rs. 6 per unit. How many units shouldthe consumer purchase to maximize satisfaction? (Assume that utilityis expressed in utils and 1 util = Re. 1). Give reasons for your answer.Con. TU MU(units) (utils) (utils)1 10 102 18 83 25 74 31 65 34 36 3 4 0 (3)7. State the .law of supply.. What is meant by the assumption .other thingsremaining the same. on which the law is based? (3)8. A firm.s Average Fixed Cost of producing 2 units of a good is Rs. 9. and givenbelow is its total cost schedule. Calculate its Average Variable Cost and Marginal

Cost for each of the given level of output :Output TC(units) 1 232 273 30

9. Explain the implication of the feature .product differentiation. underMonopolistic Competition.ORExplain the implication of the feature .Freedom of entry and exit of firms.. (3)10. State the problems relating to allocation of resources in an economy. (3)11. Explain the effect of rise in the prices of .related goods. on the demandfor a good X. Use diagrams.ORExplain the effects of rise in income on demand for a good. Use diagram. (4)For Blind Candidates only in lieu of Q. No. 11Explain the effects of change in the prices of .related goods. on demandfor good X.ORExplain the effects of change in income on demand for a good. (4)12. When price of a good falls from Rs. 5 to Rs. 3 per unit, its demand risesby 40 percent. Calculate its price elasticity of demand. (4)13. Complete the following table :Output Price Marginal Revenue Total Revenue(units) (Rs.) (Rs.) (Rs.)1 -- 10 --2 9 -- --3 -- -- 244 -- 4 -- (4)14. Explain the likely behaviour of Total Product and Marginal Product whenonly one input is increased while all other inputs are kept unchanged. ORAll the inputs used in production of a good are increased simultaneouslyand in the same proportion. What are its possible effects on Total Product?Explain with the help of a numerical example. (6)

15. There is a simultaneous .decrease. in demand and supply of a commodity.When will it result in :(a) No change in equilibrium price.(b) A fall in equilibrium price.Use Diagram.For Blind candidates : In lieu of Q.N0. 15.There is a simultaneous .decrease. in demand and supply of a commodity .Explain its effect on equilibrium price. (6)16. Define .producer.s equilibrium.. Explain the conditions of producer.sequilibrium in terms of Total Cost and Total Revenue. Use diagram.For Blind Candidates only in lieu of Q.No.16.Define .producer.s equilibrium.. Explain the conditions of producer.sequilibrium in terms of Total Cost and Total Revenue with the help of aschedule. (6)Section - BIntroductory Macroeconomics17. If MPC and MPS are equal, what is the value of the multiplier? (1)18. What is meant by Statutory Liquidity Ratio? (1)19. How is primary deficit calculated? (1)20. What will be the effect of a rise in bank rate on money supply? (1)21. If planned savings are greater than planned investment, what will be its effect oninventories? (1)22. State the nature of transactions that are recorded in current account of theBalance of Payments account. (3)23. From the following data calculate national income :Rs.(Crores)(i) Compensation of employees 800(ii) Rent 200(iii) Wages and salaries 750(iv) Net exports (-30)(v) Net Factor income from abroad (-20)(vi) Profit 300(vii) Interest 100(viii) Depreciation 50 ORCalculate .gross domestic product of factor cost. from the following data.(Rs.Crores)(i) Private final consumption expenditure. 800(ii) Net domestic capital formation 150(iii) Change in stock 30(iv) Net factor income from abroad (.) 20(v) Net indirect tax 120(vi) Government final consumption expenditure 450(vii) Net exports (.) 30(viii) Consumption of fixed capital 50 (3)

24. How does money solve the problem of double coincidence of wants ? (3)25. What are open market operations ? What is their effect on availibility of credit ? (3)26. What is the basis of classifying government expenditure into :(a) Plan expenditure and non-plan expenditure(b) Developmental expenditure and non-developmental expenditure. (3)27. What are the implications of a large revenue deficit? Give two measures toreduce this deficit. (4 )28. Give two reasons for a rise in demand for a foreign currency when itsprice falls. ORState any two merits and demerits of flexible exchange rate system. (4)29. Can an economy be in a state of under employment equilibrium? Explainwith the help of a diagram.For Blind Candidates only in lieu of Q.No.29.Can an economy be in a state of under employment equilibrium? Explain. (4)30. How will you treat the following while estimating domestic product of India?(i) Rent received by a resident Indian from his property in Singapore.(ii) Salaries to Indians working in Japanies Embassy in India.(iii) Profits earned by a branch of an American Bank in India.(iv) Salaries paid to Koreans working in Indian embassy in Korea. ORExplain any two precautions that should be taken while estimating nationalincome by (a) value added method, and (b) income method. (6)31. Given below is the consumption function in an economy :C= 100 + 0.5YWith the help of a numerical example show that in this economy as incomeincreases APC will decrease. (6)32. Calculate Gross National Product at Market Price and Personal Disposable Incomefrom the following data(Rs. crores)(i) Subsidy 20(ii) Net factor income from abroad (.) 60(iii) Gross national disposable income 1050(iv) Personal Tax 110(v) Savings of private corporations 40(vi) National income 900(vii) Indirect tax 100

(viii) Corporation tax 90(ix) Net national disposable income 1000(x) National debt interest 30(xi) Net current transfers from abroad 20(xii) Current transfers from government 50(xiii) Miscellaneous receipts of the government administrative 30departments.(xiv) Private income 700 (6)